Mortgage market open for business
Posted on 12 February 2013 by
Marsden Building Society has just launched a 3.99% fixed rate to 31/7/15 for LTVs up to 90%, which is available for both purchases and remortgages. Not only is this the first time for nearly 10 years that the 4% barrier has been breached for a fixed rate mortgage available up to 90% LTV but this mortgage also comes with a free valuation; remortgages also qualify for free legal fees. The arrangement fee is £1,098 and the maximum loan £250,000. The end date of 31/7/15 is also generous for a 2 year fix, resulting in most borrowers getting the benefit of the fixed rate for over two years.
One of the benefits of a short term fix for those with only a 10% deposit is that, assuming no change in the property value, on a 25 year repayment mortgage at 3.99% it only takes 2¼ years for the LTV to fall to 85% and every 5% reduction in the LTV required means lower rates are available. For example currently 2 year fixed rates up to 85% LTV start at about 3.5%.
Although renting is a lifestyle choice for many people, many others are renting because they don’t expect to qualify for a mortgage. Finding even a 10% deposit will still be a challenge for many but the increased availability of mortgages demonstrated by this deal means the dream of home ownership can now become a reality for more people, with monthly payments in many cases no higher than rental payments.
It’s all about FLS
The impact of the Funding for Lending Scheme (FLS) is continuing to benefit the mortgage market, with most lenders planning to increase lending this year, resulting in by far the greatest level of competition in the market since the demise of Lehman Brothers. Although the initial impact of FLS was primarily at the sub 60% LTV level, competition has progressively extended up to LTV curve over the last few weeks, culminating in a fixed rate now becoming available up to 90% LTV around or below the level of most SVRs.
It is also important to note that FLS has not only directly improved the availability of cheap money to lenders but it is also having a much wider impact. It has been a catalyst to reduce the cost of, and increase the availability of, other funding sources. For example the 3 month Libor rate has fallen almost 0.5% since FLS was announced to a current level of 0.51%. Furthermore, although swap rates are off the bottom they are still well below their pre FLS levels.
Add to that reduced costs on existing Residential Mortgage Backed Securities (RMBS) as a result of the sharp fall in the Libor rate, plus lower margins above Libor on new RMBS issues, coupled with lower rates being paid on retail savings as a result of less demand for these deposits, and it is clear that the impact of FLS on funding costs goes well beyond the cheap money it directly provides.
Regulation still hampering lenders
Some of the benefit of lower borrowing costs is being eaten up by ever increasing regulatory costs but, notwithstanding this, the appetite to lend has returned to the market and many potential purchasers and remortgagers who a year ago may have all but given up hope of getting a new mortgage will now find that not only can they obtain a mortgage, but they can do so at a good rate as well!”
People with a good credit status, adequate income and at least a 10% deposit, or equity, will now generally be able to obtain a mortgage at a good rate, and there are even opportunities for those with only a 5% deposit, both in the new build market and elsewhere.
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