by Mark Johnston
Lenders begin to cut rates again!
The Bank of England’s ‘funding for lending’ scheme was recent unveiled in the UK with the aim of providing banks with up to £80 billion of cheap loans to pass on to customers in the form of loans and mortgages.
If banks decided to use this scheme it will essentially mean they get mortgage funding at base rate plus 0.25 for 4 years. This means they will be able to get £1 for every £20 worth of lending they currently have to home owners.
Ray Boulger, of brokersLondonand Country, said “the fact that this scheme will last for up to five and a half years, suggests that the bank expects the banking system to remain under pressure for most, if not all, of that period”.
An initial analysis by Bank of England staff suggests the ‘funding for lending’ scheme should more than offset the tightening in credit conditions that has occurred since May 2012.
However, Fionnuala Earley, Royal Bank of Scotland’s consumer economist said that the scheme should help first time buyers in principle, but added that “the issue is still that it is quite expensive for first time buyers to get on to the market, with the deposits that are now needed”.
While many lenders welcome the scheme they have also warned that lower rates will help, they may not boost first time buyer numbers and this is due to underlying problems of demand and economic uncertainty.
The Royal bank of Scotland (RBS) is using the scheme to cut its mortgage rates for first time buyers. They are offering a direct only fee free 5 year fixed rate deal at 90% loan to value (LTV) at a rate of 4.79% from its previously 6.49% rate.
Santander have also introduced a 5 year fixed rate at 2.99%, although it does come with a hefty £1,495 fee and is only available for the banks existing current account and mortgage customers.
The lender has also launched another competitive deal which is available to all home buyers. It has a rate of 2.99%, with a £1,495 fee on a 60% loan to value (LTV) ratio.
Cheltenham & Gloucester and Northern Rock have both reduced a selected range of their fixed rate deals by 20 basis points.
Many borrowers will be hoping that these new deals will mean more competition in the mortgage market and also an end to the rising rates on the best home loans seen since early spring.
HSBC has already ruled itself out of using the ‘funding for lending’ scheme. The banking giant has however launchedBritain’s lowest ever 5 year fixed rate mortgage which offers a rate of just 2.99%. This cut price new mortgage is only likely to benefit the best borrowers with the best credit ratings and not those struggling to get on to the ladder.
Anyone wanting to access this mortgage will need to pay a hefty £1,499 fee and also have a huge 40% deposit.
These decisions to launch super low rate mortgages are a switch in direction after many lenders recently raised their rates, therefore time will tell what will happen next.
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