The amazing collapse of the mortgage market is failing to restrain rates or fees charged by lenders.
Figures from the British Bankers Association (BBA) showed a 56 per cent plunge in loans to new buyers and there’s plenty more bad news for people seeking mortgages.
“The average cost of two-year fixed rate deals has soared by almost £1,300 in the past six months,” says Jonathan Cornell at Hamptons Mortgages. “Large lenders are guilty of continuous rate hikes and fees.”
Moneyfacts.co.uk says the average rate for two-year fixed rate mortgages has broken the seven per cent barrier, while the average on five-year deals is 6.82 per cent.
It says even Standard Variable Rate (SVR) mortgages – average 7.02 per cent – are back in demand. Many borrowers with fixes expiring – more than 100,000 per month – are taking SVRs to avoid upfront fees and charges.
Lenders may, of course, be focusing on remortgagers with more equity in their property for safety’s sake.
The number of May remortgages at 63,000 was only ten per cent down on May 2007 – and Ed Stansfield at Capital Economics thinks lenders minimise risk in a falling market by concentrating on remortgages.
But Ray Boulger, senior technical manager at brokers John Charcol, says the problems are two-fold.
“First-time buyers are not keen to buy, with confidence in the market at a low ebb. And many still keen to buy can’t borrow, because they have little or no deposit or an adverse credit record within the last three years,” he says.
“Many people with County Court judgements pay off debts at minimal monthly rates allowed by the court. If they paid it off more quickly, lenders might take a more favourable view.”
Boulger says even buyers with five per cent deposits may be hit by higher interest rates, plus Higher Lending Charges (HLCs). A Royal Bank of Scotland (RBS) two-year fix at 7.54 per cent, for example, has an HLC costing 1.5 per cent of the loan, with £999 arrangement fee on top.
Better value might be Bristol & West’s three-year fix to a maximum LTV (loan to value) of 95 per cent at 7.69 per cent, with no HLC and £499 fee. The name of at least one parent is needed on the mortgage deed.
Among five-year fixes, Boulger tips Coventry BS’s 7.49 per cent deal for first-time buyers. It has a £199 fee and no HLC.
“But it is hard to see the credit crunch lasting five years, and property prices will probably bottom out within two years,” he says.
“Only take a five-year deal if you expect no improvement in property or mortgage markets over that period or any change in your circumstances.”
For borrowers who don’t need the security of a fix, Boulger thinks lifetime trackers might be the best bet through current storms.
He likes Woolwich’s fee-free tracker of Bank Base Rate (BBR) plus 0.99 per cent – currently 5.99 per cent, but with maximum LTV of 60 per cent.
Charcol has devised a two-year tracker of its own – at BBR plus 0.99 per cent until September 30, 2010 before reverting to SVR – on loans up to a maximum £999,999.
It comes with free legals and valuations on remortgages and the freedom to repay up to 10 per cent of the loan per annum without incurring Early Repayment Charges.
Other flexible features include underpayments and payment holidays – which might appeal to borrowers fearful of trouble ahead in financial and housing markets.
However, at mform.co.uk, a free online service backed by Artemis Fund Managers to give remortgagers and new borrowers direct access to the best value loans, spokesman Gordon Swan says “doom and gloom” talk has triggered strong demand for fixed rate mortgages in the past fortnight.
He says the best deals are often provided by lenders keen to cut out brokers and deal direct.
“Although lenders have steadily widened the gap between BBR and fixed rates, around 70 per cent of experienced remortgagers opted for fixes in recent weeks,” Swan says.
“Cheapest two-year fixes are still around six per cent, with one or two below that with fees of £1,000-plus.”
Yorkshire BS has launched two and five-year fixes both at 5.99 per cent, with stonking fees of £1,995 and £2,495 respectively. In both cases, maximum LTV is 75 per cent.
Swan says five-year fixes should cost slightly less than two-year deals, because banks can borrow five-year money more cheaply.
Increasingly, best deals are reserved for borrowers holding at least 20-25 per cent of the equity of their home. Abbey’s offset mortgage at 6.43 per cent, allowing borrowers to set interest earned on savings against mortgage repayments, has cut arrangement fees by £1,000 to £1,499. But maximum LTV is just 75 per cent.
One of the best buys in the mortgage market this year, HSBC’s “special” five-year fix at 5.63 per cent, was sadly pulled on June 11.
But HSBC, which reckons it attracted ten per cent of the entire UK mortgage market in the last three months, has replaced it with a five-year fix at 6.29 per cent, with £799 fee and maximum LTV of 90 per cent.
HSBC is also maintaining its Rate Matcher, which renews existing fixes at the same rate for a further two years for its own borrowers with fees up to £4,999. Rate-Matcher for non-HSBC borrowers ends on June 29.
“HSBC has provided great value for a year because it wants to boost its mortgage book and is not facing pressures faced by other banks,” Swan says.
However, HSBC is a direct-only supplier of mortgages, which means its borrowers rarely take impartial advice.
In that case they might overlook HSBC’s overpayment rules, which, are tighter than some rivals.
The bank allows overpayment of only 20 per cent of normal monthly repayments before penalties kick in, so borrowers receiving a windfall or annual bonus may have difficulty if they want to use it all to pay off a loan.
Meanwhile HSBC’s online bank, First Direct, has raised its celebrated two-year fix from 5.99 per cent to 6.15 per cent – with fees of £1,498 and maximum LTV 80 per cent.
In April, the online/telephone bank suspended its service to new borrowers as demand hit five times normal levels.
First Direct’s lifetime tracker – at BBR plus 0.99 per cent, currently 5.99 per cent – comes with a fee of £399 and maximum LTV of 90 per cent.
Information: John Charcol (0800 718 191); mform.co.uk; First Direct (0800 244 824 and www.firstdirect.com); HSBC (0800 169 633 and local branches).