Mortgage Price War!

by Mark Johnston

Recent reports have stated that a mortgage price war has been building in the past few weeks as lenders slash the cost of borrowing in an attempt to attract business.

The amount of mortgage rate cuts in recent weeks has accelerated to a daily event with lenders taking turns to top the best buy tables.

The current battleground however is leaving first time buyers out in the cold as the best deals require a deposit of at least 40%. With this in mind experts suggest that the housing market could struggle with the continued decline in affordable lending for first time buyers.

Many of the major lenders have launched a full blown price war, aggressively undercutting each other in an effort to pull in borrowers since the credit crunch took hold a year ago.

The bank of England published figures that showed Britain’s major lenders provided net lending of £600 million in March 2011 down from £700 million in February 2011.

‘Swap rates’ which fixed rate mortgages are linked to, have fallen substantially therefore providing room for lenders to get competitive.

Fixed rates are now starting from as low as 2.39% and rates could fall lower as lenders chase the narrow market of borrowers who can afford to provide a good sized deposit. Melanie Bien of Savills private finance, suggest that “rates are coming down which is encouraging, however increasingly a 25% deposit or equity in your home is not enough”.

The Halifax has cut rates by up to 45%, though these cuts are only available to borrowers with a deposit or equity in their property of over 25%.

Skipton building society slashed 0.5% off the rate for its two. Three and five year fixed deals. Meanwhile Barclays has cut rates on its tracker and fixed rate deals by up to 0.32%, they have also reduced their rates on 80 and 85% loan to value (LTV) mortgages. The Halifax and Northern Rock have also lowered rates on their two and three year fixed rate buy-to-let mortgages by 0.4%.

The Woolwich is offering a 2 year fixed rate deal at 5.99% with a fee of £995 for those with a deposit of 40%. Barclays offer a 5 year fixed rate deal at 3.88% with 70% loan to value (LTV) for its loyalty customers or 3.98% for all other customers and a 2 year fixed deal at 2.49% for existing Woolwich customers (a reduction of up to 0.50%) or a rate of 2.54% for all other customers. These are the banks cheapest deals in 15 years.

Meanwhile Abbey National recently launched a 2 year tracker at 5.69% with a fee of £1,950 for anyone re-mortgaging with at least 25% equity in their property. The Halifax offer borrowers looking to re-mortgage with 25% equity free legal and valuation fees, it has also cut its 2year fixed rate deals for 75% loan to value (LTV) from 6.19% to 5.84%.

Senior technical manager at mortgage broker John Charcol, Ray Boulger said “there is a strong chance we will see the cheapest 5 year fixed rate deals soon go below 4%.

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