Online financial news

Could the freeze on British mortgage lending be starting to thaw? It’s beginning to look that way, as a number of lenders have cut their rates over the last few weeks.

In fact, not only are many banks and building societies cutting their rates, it’s becoming easier to bag a competitive rate with a smaller deposit.

Has the mortgage market stabilised?

Moneysupermarket.com has recently teamed up with mortgage broker L&C Mortgages to offer a wider selection of mortgage advice. David Hollingworth at L&C is cautiously optimistic about the market: “In terms of new deals, I’d say greater stability in the market is breeding more competition. As house prices stabilise, lenders are starting to show more appetite to lend, so they’re finally starting to compete for customers.”

So does that mean there’s hope for borrowers with lower deposits? David continued: “Up until recently, the only competition has really only been at the low-risk end of the market with a number of lenders fighting over homebuyers with large deposits or significant equity in their property, but it’s beginning to filter down and we’re seeing a greater willingness to lend up to higher LTVs.

“The signs are definitely encouraging. We’re obviously not back to boom times, but the mortgage market is better than it was a year ago.”

Cuts keep coming

The cuts just keep on coming, although the top deals are still for those with a large deposit.

If you have a deposit of 45% or more, Coventry Building Society has just launched a two-year fixed rate of 3.45% – plus fees of £999. Its two-year fix is at 3.45%, again with fees of £999.

From Saturday January 16, the market leader will be a two-year fix from Principality, which is offering rates of 3.44% for loans of up to 65% with fees of £999.

It’s not only fixed rates that are coming down. Some lenders have also cut their tracker rates. If you are happy to take a bit more risk and opt for a variable rate mortgage, you can benefit from some even lower rates.

For example, HSBC is reducing its tracker rate from 2.59% to 2.49%, again for those with a 40% deposit and fees for £999.

Which lenders are accepting smaller deposits?

Hannah-Mercedes Skenfield, moneysupermarket.com’s mortgage channel manager, said: “We are seeing an improvement in the mortgage market but the best rates are still reserved for those with deposits of at least 25% and, to be honest, it’s likely to remain that way for the foreseeable future. There are deals to be had for those who only have 10% to put down but they will need to shop around and be prepared to pay a premium.”

“The biggest barrier to entry into the mortgage market, along with supply, remains obtaining a deposit.”

However, there are some competitive deals out there for borrowers with only a small deposit. Coventry Building Society, for example, offers a variety of products that are available for loans up to 85% of the property’s value.

Some first-time buyers could even qualify for a 90% loan. If you’ve banked with Coventry for three or more years, or if a parent or grandparent has, then you could qualify for a 5.99% five-year fixed rate with just a 10% deposit.

The arrangement fee is just £199 and you also get £500 of Ikea vouchers to help kit out your first home.

In addition, Nationwide cut a wide range of fixed and tracker deals, bringing down the price of its two-year fixes for those with at least a 20% deposit.

Its no-fee, two-year fixed rate has dropped from 6.14% to 5.54%. If you’re willing to pay an arrangement fee of £896 you can fix your mortgage at 5.34% – down from 5.74%. Both of these deals are available for loans up to 80% of the property’s value.

What are the best mortgage rates for small deposits?

However, even 15% or 20% is a pretty hefty deposit for many. There are mortgages available to those with just 10% to put down, although the choice remains limited. HSBC is probably the most competitive lender for those needing to borrow 90%. There is a £999 arrangement fee and no early redemption charge at any time.

If you’d rather have the security of fixed monthly repayments, Saffron Building Society is offering a rate of 5.89%, set until the end of November 2012. The fees on that deal are £995.

Alternatively, Yorkshire Bank offers a rate of 5.99% fixed until March 31 2012, with fees of £999.

What the lenders say

According to the Council of Mortgage Lenders (CML), the monthly cost of a mortgage has now fallen to its lowest level in five years.

The figures relate to November last year and show that home movers typically needed to pay 10.6% of their gross income to cover the interest payments on their mortgages, compared to 14.4% in the same month 2008.

CML director general Michael Coogan said: “It is encouraging to see that mortgage interest payments are so affordable for home movers and first-time buyers. But with substantial deposits still needed to secure a mortgage, the market will continue to be relatively restrained for some time to come.”

Please note: Any rates or deals mentioned in this article were available at the time of writing.

Similar Posts:

• Rates Fall, But Consumers Yawn
• 30-Year Rates Fall Back Below 5 Percent
• 5-Year ARMS Hit Record Low
• Open A Chase Checking Account, Get $125.
• Inflation Fears Boost Mortgage Rates