Borrowers benefit from low rates and product highs
Mortgage borrowers are enjoying a product boom with ‘historically low’ rates and product numbers at record highs, analysts have revealed.
Since the end of the financial crisis, when the Bank of England cut interest rates to 0.50% to address the fallout, mortgage rates have nearly halved, said experts at Moneyfacts.co.uk.
What’s more in the last decade the competition between lenders providing these mortgages has become extremely vigorous meaning there is now greater availability of products and more for borrowers to choose from.
What this means for borrowers
The main beneficiaries of the low rate and high product number environment are first-time buyers. According to Darren Cook, finance expert at Moneyfacts, a decade ago providers did not want to lend to borrowers who could only raise a small deposit of 5%.
In fact, he revealed, there were only three mortgages available for people with this size of deposit in March 2009.
“However,” he added, “providers have since adapted to the new post-crisis mortgage environment and today the same type of borrower has the choice of 391 different products.”
It’s not only first-time buyers and those with low deposits who are profiting from this boom. According to Cook those borrowing at lower levels – borrowers with bigger deposits or with significant equity already in their home – are also experiencing increased product choice.
In fact, Moneyfacts’ figures show borrowers with a 40% deposit or equity now have double the number of mortgages to choose from than a decade ago.
The value of remortgaging
While mortgage and remortgaging deals are getting cheaper, standard variable rates (SVRs) – the rates lenders charge if you come to the end of your deal and do not remortgage – have remained largely the same since 2009.
Moneyfacts said the average SVR had only increased by 0.12% since 2009 from 4.77% to 4.89%. But in the same time, the average two-year and five-year fixed rate mortgages had nearly halved.
A typical two year deal was 4.79% in March 2009 and is now 2.49%. Meanwhile the five-year fixed rate tumbled from 5.62% to 2.89% in the same time.
Cook added: “Borrowers must be aware that, despite the increase in product availability and average rates reaching record lows, during the past decade the Financial Conduct Authority (FCA) has introduced clear affordability measures that mortgage providers are required to follow and, as a result, lending criteria is much stricter than it was before the financial crisis.
“If you are ever unsure whether or not you will be accepted for a particular mortgage product, it is always wise to speak to a mortgage broker first to try and limit the chance of an application being rejected and, as a consequence, negatively affecting your credit score.”
Article by Kate Saines for www.whatmortgage.co.uk