Mortgage rates improve as demand weakens

Homebuyers’ wariness of making a commitment to move house and lack of demand for mortgages is forcing lenders to revamp their products with many improvements this week both in headline interest rates and maximum loans to value.

Sellers outnumber buyers

August is typically a quiet month for lenders as families are away on holiday.  Ivor Dickinson, managing director of estate agent Douglas & Gordon, points out that, ‘in London we are not seeing a deluge of new property coming to the residential sales market, but the cumulative total is growing month on month because of a slowdown in actual sales. In July we took on almost exactly the same number of new properties as this time last year, but the total number of properties available is 68% higher.’  In other words, there are now more sellers than buyers.

With demand relatively low, lenders are having to compete for new business.  Coventry Building Society has just launched a new range of loans, available through its intermediary subsidiary Godiva Mortgages with record low rates starting at 2.75%.  Only HSBC, Ing Direct and First Direct offer products at better rates than this and they are all lifetime trackers.

But the Coventry is being ultra cautious and the new low rates are only available for those who need to borrow no more than 50% of the purchase price.  The rate of 2.75% is offered on a lifetime tracker or borrowers can opt for a two year fix at 2.99%.  Both mortgages have fees of £999.  If you want a larger loan to value of up to 75% which is more realistic for most people, you will pay 3.15% on a lifetime tracker (Bank Base Rate plus 2.65%) with fees of £999.

Flood of applications for First Direct

However, this doesn’t compare with HSBC’s lifetime tracker at 2.19% (Bank Base Rate plus 1.69%) with a maximum loan of 60% and a fee of just £99.  First Direct is not far behind, also with a lifetime tracker at 2.5% (BBR plus 2%), and a fee of £99.  But there are reports that First Direct is overwhelmed with applications and borrowers are having to wait up to a month for an interview.  There are also stories of a high level of rejections - so be warned.

‘We don't want people to panic about this,’ said Rebecca Hirst of First Direct.  ‘We're sending letters to everyone that has rung up about the mortgages confirming that, providing they qualify, they will get the interest rate they initially called about,’ she confirmed.  First Direct is also recruiting more staff to cope with the flood of applications.

Summer gimmick?

You have to wonder too how serious HSBC is with its lifetime tracker at 2.19%.  It was a limited offer which the bank has now extended to September 5th but could be removed at any time before that.  HSBC claims that four out of five borrowers are being accepted.  But how many people are likely to want to think about remortgaging or house purchase during August?  This looks like a bit of a gimmick.

The big bonus with the HSBC and First Direct trackers is that there are no early repayment penalties if you switch so you are free to sign up for a fixed rate at a later date when interest rates start to move up. Ing Direct also has a lifetime tracker at 2.65% with loan up to a more reasonable 75% and fees of £945.

Not far below in the best buy tables comes Yorkshire Building Society which has also just reduced its rates and is offering a market-leading three-year fixed rate deal at just 4.59% with a £495 fee – but most important, loans up to 85% are available.  There are cheaper three year fixes but you will need a larger deposit. 

A two year fix is also available at up to 85% loan to value at 3.99% and a fee of £995 as well as a three year tracker at 3.49% (BBR plus 2.99%) with a fee of £494.   Yorkshire also has a chart topping mortgage for those wanting a loan up to 75% with a two year fix at 2.99% and fees of £495.The Post Office has also cut its rates for loans up to 85% and the new rate for a two year fix is 3.94% with a three year version at 4.69%.

Five year fix may be safer

But if you are going for a fix, two or three years may well not see you through the interest rate cycle and you could find that you need to remortgage  just as rates have reached a peak or are still rising.  A five year fix would be safer and here the market leader is HSBC again with a five year fix at 3.95%, loans up to 60% and a relatively modest fee of £599. Yorkshire Building Society also has an attractive five year fix at 3.99% until September 2015 a fee of £995 – but best of all loans up to 75% are available.

Many of these ‘best buy’ products like HSBC, First Direct and Ing Direct are only available direct from the lender.