If you’re after a new fixed mortgage deal Moneyfacts data is revealing that you should be acting now. Their research shows rates are starting to increase, and the number of available mortgage products is falling.
A lot has been written recently about the mini-boom in the UK property market with far less about the mortgage market which we’re seeking to address with this article. With what has happened this year and there’s no need to remind anyone, lenders have been tightening their criteria’s and pulling products.
Lenders are not making things as easy as they had in the past, and it’s only going to become more challenging to secure a good deal in the near future. This is why you should be acting now.
To provide an insight into how tough securing a new deal is already, the broker Retirement Mortgage Service discovered 8 out of 10 borrowers aged over 55 are being turned down by mortgage lenders when looking to renew.
In the Moneyfacts UK Mortgage Trends Treasury Report data, (not yet published), reveals between July and August of this year, there were 2,526 available products in the market as of the 1 August. This was a drop of 202 products when compared to the 2,728 deals available at the start of July.
Worryingly, their research has also shown that following the historic lows last month, average rates are now beginning to increase.
Both the two and five-year fixed average rates for all loan-to-values (LTV) have increased by 0.09% since the beginning of July, now 2.08% and 2.34% respectively. As might be expected, higher LTV tiers – which present a higher risk to lenders – have experienced more significant rate rises, but even the lower tiers have not been immune to increases in their average rates.
Those who are exploring their mortgage options may want to consider securing a new deal now before rates potentially increase further.
Eleanor Williams, a Finance Expert at Moneyfacts, said: “The introduction of the stamp duty holiday and record low average rates following an enforced period of shutdown for the market has seen demand for mortgages escalate in recent weeks.
“However, product choice and availability remains a key issue for mortgage borrowers. Until there is more certainty regarding the economic outlook and clarity around risk – which may well not become clear for some months, particularly until the Government furlough scheme winds down at the end of October – it seems unlikely that the mortgage sector will bounce back to the levels of availability that we saw six months ago, especially in the higher-risk tiers, where high levels of demand combined with stretched operational capacity remain a concern.
“Our latest research illustrates that rates are starting to creep upwards, with the two and five-year fixed averages for all LTVs both increasing by 0.09% this month, and averages for higher LTVs, in particular, experiencing even more significant increases. Rates at 85% LTV experienced one of the sharpest climbs, with the average two-year fixed rate increasing by 0.21% this month, and the five-year equivalent climbing by 0.23%, sitting at 2.32% and 2.57% respectively as a result.
“However, when the current averages are compared to their equivalent rates last year, the overall two-year fixed rate for all LTVs at 2.08% is 0.41% lower than it was in August of 2019 (2.49%), and the five-year fixed at 2.34% is 0.50% lower this month than a year earlier (2.84%), meaning that we are still in an environment where cheap mortgage deals are available. Therefore, those who have been waiting to see how the market moves may want to consider pursuing a new deal now and lock into a low rate before they potentially climb further.
“For borrowers, assessing the “true cost” of a new deal is essential, particularly at this time when many have concerns about their household income. We have, therefore explored the difference between the current two-year and five-year fixed rates. The longer-term stability of a five-year fixed rate traditionally means that these are more expensive than their two-year counterparts, which can equate to a difference in monthly mortgage payments in the region of £25* more.
“However, taking advantage of the low base rate environment and locking into a five-year fixed rate now would ensure an ability to budget to a stable mortgage payment, and would protect from future interest rate volatility over the next 60 months.
Another consideration is that there are associated costs with taking on a new mortgage deal and despite a small fall in the average fee charged for mortgages (£574 this month, compared to £585 at the start of July), the lower monthly payment of two-year fixed options could easily be cancelled out by needing to pay further fees at the end of the 24-month initial term, coupled with the fact that rates in two years’ time may be rather different to those that are available today.
“With reports that bank profits may be falling and providers needing to set more funds aside for further Coronavirus planning and potential defaults, this could signal the end of the historic low mortgage rates of recent months. Therefore, those looking to secure a new deal now may wish to move swiftly. The role of an experienced, independent adviser has never been more pivotal in ensuring borrowers are able to make an educated choice about the right product for their circumstances and priorities.
With criteria and underwriting requirements being updated with a similar regularity to mortgage products themselves, being supported and guided through the mortgage application maze by a professional with access to the most up-to-date information would be wise.”
*Calculation based on £200,000 mortgage balance, over a 30-year term, at 80% LTV, average two-year fixed rate of 2.22% or average five-year fixed rate of 2.47%.
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