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MORTGAGE UPDATE: To fix or not to fix

The mortgage market has got off to a flying start compared to the misery of the past 18 months, with hundreds of new products hitting the market.

Enquiry levels are also rising dramatically as many people, who may well have put their lives on hold for two years, seem to have decided that now is the time to make that move, or finally protect themselves against future Bank Base Rate rises.

Being able to secure rates as low as 2.39% on a two-year tracker basis or fixing for 3.44% for two years are very attractive options. So attractive, in fact, that many traditional cash buyers are beginning to borrow again, preferring to use their funds for other investments, rather than bringing all their cash into the country.

The debate about whether to fix or take a tracker product will rumble on for a while yet, particularly with the Base Rate remaining at 0.5% for another month. But a five-year fixed rate deal below 5% is good value in any market, especially for those refusing to sit up all night sweating at the first sign of a rate increase.

Competition

The good news, especially for many first-time buyers, is that as competition has seeped slowly back into the mortgage market, lenders are being forced to look beyond 60% loan-to-value deals and are starting to venture into other areas, such as the buy-to-let arena, where higher profit margins can more easily be achieved.

For example, Newcastle is offering 90% LTV loans at 4.1% above Bank Base Rate for its two-year tracker mortgage and 5.95% for its two-year fixed rate deal. However, the lender has warned that the funds available for these deals are limited.

The 90% LTV deal is the new maxi loan, and it is unlikely that many lenders will look to lend above this level for the foreseeable future, which is no bad thing. Nationwide is the only lender to have embraced 95% LTV, but only for existing clients.

Meanwhile, Abbey has announced that it is increasing its LTVs for first-time buyers purchasing new-build properties, which is another welcome move.

But let’s not be under any illusions; the mortgage market is still fragile, and there are some worrying signs that funding availability could be set to go through another storm in the coming months. In the meantime, however, it is a great time for clients to take advantage of some of the highly-competitive products available.

Andrew Montlake is communications director for Coreco Group

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