In the space of only two years the mortgage market has been turned upon its head, sparked by the near collapse and subsequent nationalisation of the Northern Rock, and accentuated by a full scale credit crisis. It appears that the cost of borrowing seems to be on the rise regardless of any movement in the Bank of England base rate.
As recently as 2006 prospective buyers could obtain 125% mortgages at low fixed rates; however to secure any type of mortgage now at least a 10% deposit is required and most lenders are also charging higher rates, especially on fixed rate mortgages.
That may be because they continue to be the most popular products, accounting for almost 59% of all loans in April 2008, as borrowers seek to stabilise their mortgage payments in the light of rapidly rising food and utility prices. However, the price rises are not as a result of the banks cashing in but merely financial institutions passing on the rising cost of obtaining wholesale funds in the world’s financial markets.
As a result of those interest rate rises it’s pretty desperate news for those seeking to get a foothold in the property market, especially those who possess a deposit of less than 10%. That type of prospective borrower may find it impossible to get a mortgage, but if they are lucky enough to get an offer they face paying around £2,500 in upfront fees and an annual interest rate of around 7.00%.
But, although it may be grim for first-time buyers with small deposits the prospects are brighter for those who are looking to borrow 75% or less of their property’s value. With the onus most definitely on avoiding risky lending, banks and building societies are actively chasing buyers who require low loan-to-value (LTV) ratios and therefore offer more competitive rates to attract such borrowers.
Indeed, despite the rise in interest rates on fixed rate products many existing homeowners would be wise to run their existing borrowing requirements through a website remortgage calculator as they may find that there are fixed rate deals which are more advantageous than their current mortgage, especially for those on Standard Variable Rate (SVR).
An estimated two million mortgage holders have seen previous fixed rate deals come to an end in the past 12 months, but those with a LTV of 75% or less are sitting pretty. They have the opportunity to fix their mortgage payments for five years: time enough to ride out the current credit crisis and also control at least one cost at a time when all other prices seem to be going through the roof.
Daniel Collins writes on a number of topics on behalf of a digital marketing agency and a variety of clients. As such, this article is to be considered a professional piece with business interests in mind.
