Mortgage rates continue to plummet

Friday 22nd February 2013

Average rates for two and five year fixed mortgages are predicted to dip below 4% by the end of April as a consequence of the mortgage rate war fuelled by the Funding for Lending Scheme.

The latest National Mortgage Index from the Mortgage Advice Bureau (MAB) – the UK’s leading independent mortgage broker – showed unprecedented interest in fixed rates from borrowers, with 93% of purchase and 92% of remortgage applications in January 2013 for fixed rates.

Using data from more than 500 brokers and 800 estate agents, the Index also saw the average loan to value (LTV) for remortgages climb back to its highest point (59.2%) since October 2011, as borrowers higher up the LTV curve benefitted from the lender pricing war.

Digging deeper

Despite the influx of lower priced deals, homebuyers typically had dig deep to find more than £6,000 extra for their deposits than in January 2012. Buyers in January 2013 also took on an extra £12,000 in mortgage debt, compared with the same time last year.

The overall growth of purchase deposits has been driven by a big increase for homebuyers in London, who put down an average of £23,179 extra as a deposit in January 2013 than they did last year. This increase alone represents more than a third of the typical buyer’s salary (£68,205 – Jan 2013).

Even discounting London, the average purchase deposit across England has increased by £2,267 in the last twelve months, with only two regions – the West Midlands and East Anglia – seeing average deposits fall.

Greater activity levels

Lower mortgage rates saw two-year fixed deals reach 4.26% in January 2013 – their lowest level since December 2011 (4.24%), while at 4.47% and 4.27% respectively, average three and five year deals are also at an historical low.

New year launches meant the average number of available products increased slightly in January, up by 1% to 8,716, driven by a 3% rise in direct-only products to 2,427. Overall applications activity for the month within the MAB network was up by 17% on January 2012, with purchase cases up by 18% and remortgage cases by 14%.

Brian Murphy, head of lending at Mortgage Advice Bureau, comments: “Generous helpings of Government funding mean lenders are showing more appetite for risk, which is a godsend to anyone wondering where they will find the money for a deposit. The best deals are available at low LTVs, but as that space becomes increasingly crowded, lenders are open to offering better rates in return for less up-front investment.

“There has been little to get excited about around remortgages until recently, and just 12 months ago you would struggle to find a deal lower than 5%. Now they are closer to 4% and people looking to remortgage will be pretty pleased with the options open to them.

“We’re looking at an abnormal rate environment compared to the past, with a tiny difference between average two and five year deals. By the end of April, we fully expect the average to dip below 4%, and there has never been a better outlook for mortgages borrowers who tick all the boxes.”

Mortgage lending on the up

Despite the continuing economic pressures and the drop in gross mortgage lending in January, the outlook for mortgage borrowers remains upbeat.

The Council of Mortgage Lenders (CML) estimates that total gross mortgage lending, which fell to £10.4bn in January 2013, will rise over the next few months, on the back of greater demand from property purchasers.

CML’s Caroline Purdey said: “A worsening in the outlook for inflation presents a greater headwind, but we still expect the funding for lending scheme to lift activity over coming months.”

Purdey points to the fact that residential property purchase activity was robust into the start of 2013, on the back of better mortgage availability and pricing, and she believes that confidence will continue to grow moving forward.


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