Cash-rich borrowers are being offered ever-cheaper mortgages while lenders have hiked prices for first-time buyers with small deposits for the fourth month in a row.
With 95 per cent deals having vanished from the market, 90 per cent deals have become a lifeline for would-be homeowners struggling to save a deposits worth tens of thousands of pounds.
But since March, mortgages for those with a 10 per cent deposit have become both scarce and expensive.
The most alarming lockdown decline in available mortgage products has come for those seeking to borrow 90 per cent of a property’s value
Appetite to lend on 90 per cent mortgages has dropped significantly with Moneyfacts analysis revealing there are now just 56 fixed and variable rate products available, down from 779 in March.
The average two-year fixed rate 90 per cent mortgage now charges an interest rate of 3.76 per cent, significantly more than the 2.57 per cent available before the first lockdown.
This means the average customer seeking a 90 per cent mortgage on a £200,000 property over a 25-year term, should now expect to pay about £927 a month.
To put that in perspective, the same customer on average would have been paying £814 a month if applying for that same mortgage back in March.
The picture is little better even for those able to muster up to a 15 per cent deposit, with average interest rates on 85 per cent two-year fixed deals now at 3.12 per cent when in July the average was just 2.11 per cent.
However, for equity-rich homeowners who have enjoyed years if not decades of rising house prices, mortgages are getting cheaper.
Homeowners able to remortgage or buy with 40 per cent equity or deposit are being offered lower rates than they were before the pandemic.
For a home owner looking to remortgage or move home with a 60 per cent loan-to-value mortgage, the average two-year fixed deal stands at 1.77 per cent, lower than the 1.8 per cent average seen at the beginning of March.
Despite the number of 60 per cent loan-to-value products dropping from 604 to 432 since March the average rate of interest charged on these products has marginally reduced
Experts say the diverging cost of home ownership is a result of caution within lenders, which are worried about the economy, job losses and potential falls in house prices.
Chris Sykes, mortgage consultant at Private Finance, said: ‘Lenders are still looking to compete aggressively on the lowest risk lending propositions in the market.
‘That means those who have mortgages, have a proven track record of making payments and own property that for most will have increased in value since purchase, at the earliest two years ago.’
The availability of 85 per cent mortgages is healthier than at 90 per cent, though these have also reduced significantly with 344 deals available today compared to 664 prior to lockdown.
Ben Gallagher, commercial strategy developer at Habito, puts this down to lender concerns about the future economic impact of Coronavirus, the future of house prices and soaring consumer demand.
He said: ‘Almost all lenders at the moment are struggling operationally so as soon as one drops its rates it becomes overwhelmed by a surge in demand and then has to put its rates back up again.’
According to a recent report from NAEA Propertymark, borrower demand for housing has risen to the highest level recorded since June 2004, with buyers rushing to capitalise before the stamp duty holiday deadline on 31 March.
Higher loan-to-value mortgages have faced significant restrictions in the wake of Covid
For example, the largest lender in Britain, Lloyds Banking Group, lent £3.5billion between July and September of this year after the bank processed the highest number of applications in the third quarter it had seen in any year since 2008.
Matt Hardman, co-director of The Buy to let Broker, said lenders’ service levels have suffered in part due to having to cope with the highly unusual demand.
He said: ‘Should demand start to subside once clients feel they can no longer make the stamp duty deadline, then I envisage lenders will start to reduce rates to entice potential clients back into the market.’
Some good news for those with smaller deposits?
Some lenders are cutting rates in a bid to woo borrowers, according to David Hollingworth, associate director at L&C mortgages.
Hollingworth said: ‘Nationwide last week applied some cuts across a good proportion of its range, Bank of Ireland has made some improvements to its 85 per cent mortgage rates and Barclays has announced it will improve rates.’
The mortgage and housing market continue to defy the economic forecasts
There are even signs lenders are beginning to open up to customers needing to borrow 90 per cent of a property’s value, according to Chris Sykes, a mortgage consultant at Private Finance.
For the past few months lenders have been limiting 90 per cent lending to one day flash sales.
But Sykes pointed to the fact more lenders are offering 90 per cent products for a week or more at a time now, showing lenders are ‘less inundated with new applications and have the capacity to deal with more’.
He added: ‘Whilst this is a welcome return for many borrowers, it could also be indicative of a slowdown in the market and a slowdown in demand.’
Eleanor Williams, at Moneyfacts, said borrowers currently hoping to secure a new mortgage deal might find things easier if they seek advice from an independent financial adviser.
She said: ‘Financial advisers will be able to use their knowledge of the market to assist with finding the right product for their circumstances and navigating potential concerns around any possible underwriting or conveyancing delays.’
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