Mortgage Ratewatch: phew! no mortgage cap after all

Homebuyers and lenders breathe a sigh of relief. The chancellor did not announce a 75% loan to value cap on mortgages.

Homebuyers, mortgage lenders and brokers breathed a sigh of relief when it emerged that although new powers, announced by chancellor George Osborne at his Mansion House speech last week, will allow the governor of the Bank of England to impose qualitative and quantitative controls on lending, there will be no overall 75% loan to value cap on mortgages. 

Grinding halt averted

Had such a ceiling been imposed it would effectively have brought the housing market to a grinding halt, excluding all but middle class first-time buyers who can get financial help from family members from ever buying their own home. 

Any cap – whether at 75% loan to value or some other proportion – would leave every homebuyer who currently had a mortgage larger than the cap, unable to remortgage or possibly even unable to move house. For once, commonsense prevailed – not least of all because a cap would have been impossible to impose with foreign banks able to offer higher LTVs.

But homebuyers are anxious and there has been a marked upturn in the number of homebuyers and remortgagers who are opting for the certainty of a fixed rate. The latest John Charcol Mortgage Index reveals that 26% of borrowers took a fixed rate in May, the highest level since October 2009, probably responding to the increase in availability of some good new five and 10 years fixes on offer. 

Yorkshire two-year 

Amongst the new products Yorkshire building society has a good two-year fixed rate at 2.89% for those with a 25% deposit. For those who need an 85% loan the rate is 4.25% - not nearly so attractive. The two-year fix has a fee of £995 and there is an offset version available at 2.99%. Borrowers will have to apply direct, however, as they are not available through brokers.