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Mortgage price war is good news for borrowers

Monday, October 13, 2014

Mortgage rates of under 2% will become the norm in the months ahead as lenders engage in a price war that looks set to intensify in the run-up to Christmas, according to industry figures.

Last week the Bank of England said that while mortgage availability had fallen “significantly” over the summer, it was expected to increase over the next three months.

In April, as lenders attempted to get to grips with the new affordability rules (following the mortgage market review, or MMR), it was much more difficult to take out a loan.

Now these changes have bedded in, and despite the expectation of a Bank of England rate rise next year cheaper deals are expected to emerge in the coming weeks. Those who have struggled to get a loan earlier in the year, such as the self-employed, may also find a softening approach.

“Mortgage deals are already getting a lot better and, while I am always reluctant to use the term ‘price war’, I really think that’s what is happening right now,” says David Hollingworth of mortgage brokers London & Country.

The number of cheap two-year fixed rates, at under 2%, has already been mounting. HSBC has a loan at 1.49% for those who want to borrow up to 60% of the value of the property.

However, Hollingworth dismisses this deal because of the sting in the tail – a £1,999 fee. Instead, he points to Yorkshire building society’s 1.69% two-year fix for a 65% loan-to-value with a fee of £975. Alternatively, Woolwich has a rate of 1.94% for a 75% loan-to-value with a £999 fee.

Five-year fixed rates, which many borrowers are now leaning towards because of the certainty they provide, are already available for under 3% and more are expected to emerge.

Virgin has a five-year fix at 2.79% for those with a 40% deposit with a fee of £1,594. At a slightly higher LTV, 65%, Yorkshire building society offers 2.89% with a £975 fee, while Tesco has a 75% LTV deal at 2.99% with a £1,495 fee.

Even those with a smaller mortgage deposit are being catered for with exceptional interest rates. Last week Norwich & Peterborough launched a five-year fixed-rate mortgage, available to those with a 10% deposit, at 4.19% with a £1,295 fee.

“We are also starting to see a few more lenders coming into the self-employment market,” says Andrew Montlake of brokers Coreco. “We have seen a lot more people coming to us who are now on contracts. These are not just IT workers but lawyers, bankers and those in the media. As soon as MMR came in lenders didn’t know how to deal with these people and closed their doors.”

More recently lenders, including big names such as Halifax and specialist lenders such as Precise, have started considering the self-employed with just one year’s worth of accounts.

“None of this means a great throwing open of doors in terms of the criteria for getting a mortgage, but there have been some changes,” says Hollingworth. “Some lenders are looking at where their lending has been a bit tight.”

Availability for those with big childcare or travel bills has not improved, as these are some of the areas lenders are scrutinising more carefully post-MMR.

“Having dependents always affected how much you could borrow,” says Hollingworth. “But how much you actually pay for childcare is now routinely assessed, and this has had a huge impact on how much people can borrow.”

Those with big commuting costs and even those who use some of their disposable income to make pension contributions, can find the amount offered to them is considerably less than they had expected, he adds.

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