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A long road to recovery, but the number of mortgage products coming to market is up
AFTER hitting a low in August, the total number of mortgages has risen by 13% to 2,430 products, according to new research from Moneysupermarket.com. The number of higher loan-to-value (LTV) deals is also up.
At the peak of the credit crunch, nervy lenders restricted their best deals to people borrowing just 60% or 75% of their properties valued. But the number of deals available up to 85% LTV has grown by a third, from 224 in August to 345 at the end of 2009.
Lenders were wary of lending to all but the safest borrowers for fear of increasing their book of bad debts, but this is beginning to change, says Hannah-Mercedes Skenfield, mortgage manager at Moneysupermarket.com. “After four months of sustained growth in the number of mortgage products, it seems we could be on the long road to recovery.”
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Mortgage Talk
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» Our love affair with property
THE British are famed for their obsession with bricks and mortar, but it appears to be on the wane.
Barely half of us now believe that owning your own home is important to have a reasonable standard of living, according to new figures from Scottish Provident. When asked the same question in 2003, nearly two-thirds saw property ownership as critical to their financial wellbeing.
Since that earlier survey the property boom has priced many first-time buyers out of the market and the subsequent bust has stranded millions in negative equity. Some analysts claim the agony isn't over yet, and prices could fall another 10% in 2010.
As people concentrate on keeping their jobs and income, and paying down their debts, taking out a big loan to get on the property ladder is not a priority.
Few people expect house prices to soar over the next three or four years, so there isn't the same urgency to buy as there was six years ago.
Even record low interest rates, which have made property relatively affordable, have failed to stop love turning sour. But the chances are this is only a temporary rupture. When the economy has fully recovered and house prices are steadily climbing again, the affair is likely to be rekindled.
Old habits die hard.
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Competitive loans up to 95% LTV are still scarce, with numbers falling by three-quarters in 2009. “ For many people the real difficulty in getting on the property ladder is scraping together a deposit. Those with very little equity or deposit have been hard hit by the collapse of the 95% LTV market.”
Many lenders have also been pulling the sky-high arrangement fees, which can be as high as £2,000. Now the typical fee is around £999, says Brian Murphy, head of lending at brokers the Mortgage Advice Bureau. “Many lenders will charge you a lower arrangement fee if you agree to pay a slightly higher interest rate every month.
“Although if you are borrowing a large sum it can be worth paying the higher upfront fee, because this could save you money over the term of the mortgage. You need to do your sums carefully.”
Fixed-rate mortgages have fallen out of favour for new purchases and remortgages, says Ray Boulger at brokers John Charcol. Last summer, eight out of 10 new mortgages were fixed rates, now the figure has dropped to just two out of 10.
Borrowers are switching because variable rates are cheaper than fixed rates, and economists are confident that base rates could stay low for several years. “On most interest rate forecasts a good tracker will cost less than a comparable fixed rate over the next two to three years,” he say.
Boulger warns that rate expectations can change quickly. “We have advised many clients to take a lifetime tracker rate with low or zero early repayment charges, so they can quickly switch to a fixed rate if interest rates seem likely to rise faster than expected.”
By Harvey Jones
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