For a while now we have had very competitive deals at loan to values of 60% up to 75%; however as lenders re-price even if you have a smaller deposit there are savings to be had. If you are buying a new home with a 10% deposit you can access rates from as low as 2.94% on a two year fixed - twelve months ago on average you would be paying around 4% for a 90% loan to value loan. Even at 95%, the very top of the market, rates have come down and now you could be looking at 4.64% for a twenty four month fixed rate; compared to 5.49% this time last year.
If you have a larger deposit on more equity in your house then the savings are even more stark – at 75% loan to value you can secure a two year fixed at 1.54%; or a five year deal at 2.64%.
But why are rates so low? Well partly this is due to the fact that there is still a large amount of cheap money sloshing about in the UK banking system; a sizeable portion of this came form the Government via the Funding for Lending scheme. Even though this closed in January 2014 many providers have not lent out all of their funds, and are now starting to release it. The cost of borrowing between banks and other financial institutions have also dropped.
However the key driver, I believe, is that last year many banks did not meet their lending targets, due to the reduction in borrowing caused by the Mortgage Market Review. So not only did these lenders fail to earn what they needed to last year, they also have smaller pipelines of business coming into 2015 – so their repose to this is to tempt borrowers in with fantastic rates and products. And because the UK market is so competitive if lender starts, the rest follows, and now we have a rate war.
I think that this will last another three to four months before rates start to move up – so if you are considering moving or remortgaging, get your finance sorted out now to take advantage of the lowest mortgage rates ever seen in the UK.
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