As coronavirus takes its grip on the nation’s health and the economy, we look at the impact on mortgage rates and what this means for you. See what the experts are saying, compare rates this October and find the best mortgage or remortgage deal for you.
Finding the best mortgage rates in a sea of mortgage deals is hard work.
Finding the best mortgage rate is critical as it will determine how much you can afford to borrow and how much your monthly repayments are.
What’s happening with mortgages this October
It’s clear that we’re in a period of retraction in the mortgage market, particularly for first time buyers with small deposits looking for a high loan to value (LTV) mortgage product.
David Hollingworth from L&C Mortgages, says: “Lenders’ temporary withdrawals from offering deals to those with smaller deposits means that the availability of mortgages up to 90% LTV and beyond remains extremely limited.”
There are hardly any 95% mortgage products on the market at the moment, and 90% mortgage lending is hard to come by.
The 90% LTV mortgages that are available are often limited in scope. For example, Accord’s 90% mortgage is available to first-time buyers only. And it is only being made available for 2 days at a time.
TSB has done the same but offering a 90% product for 1 day only. By taking this approach, lenders can manage their capacity without being overrun with applications, and avoid taking on too much risk. For consumers, this sort of time limited release means using a mortgage broker, who knows when time limited offers are coming to market, is more important than ever.
Nationwide is another lender continuing to offer a 90% LTV. It is available to first time buyers only and for borrowing over a maximum term of 25 years on houses or bungalows (but not flats or any new build property). Only 25% can be a gift so the majority needs to come from your own funds.
Metro Bank has also relaunched into 90% lending. These are not limited to first time buyers and can be used for purchase and even for remortgage, although only for like for like remortgages so there can’t be any additional borrowing.
The end of the furlough scheme
Lending criteria has been frequently changing for mortgage products as lenders flex with the downturn of the economy. This has led to delays and a greater number of mortgage applications unable to proceed.
The end of the furlough scheme will bring more requests for borrowers to show they are returning to work. So expect to have to demonstrate this with payslips or a letter from your employer.
Mortgage holidays coming to an end
Lenders have been kept busy with mortgage holiday applications, which run officially until 31st October. While from November, banks will have no legal obligations to help, some are extending mortgage holidays into the new year. But be warned, the FCA has also confirmed that taking a payment holiday once the scheme ends will affect a borrower’s credit rating. This in turn could impact your remortgaging options.
Remortgaging in October 2020
Mortgage rates are still low which is good news for remortgage borrowers looking to get a better deal in place.
If you are approaching the end of your current mortgage deal, you can still take advantage of some very attractive rates, irrespective of Loan to Value.
What’s new this month?
Top 5 fixed rate products available are:
Lloyds Bank, offering a 2 year fixed term with a rate of 1.17% (3.4% APRC) fixed until 30 November 2022 after which the rate increases to 4.24% variable. The fee is £999 and this mortgage has free valuation and legal fees.
TSB, offering a 2 year fixed term with a rate of 1.19% (3.3% APRC) fixed until 30 November 2022 after which the rate increases to 3.59% variable rate. The fee is £1494 and this mortgage has free valuation fee and £300 cashback.
The Nationwide are offering a 2 year fixed rate of 1.24% (APRC 3.2%), and then 3.59% variable. The fee is £999 with a cashback of £500.
The West Brom Building Society 2 year fixed rate is 1.24% (3.6%APRC) until 30 November 2022 after which time the rate increases to 3.99% variable. The fee is £999 and this mortgage has no legal fees.
The Barclays 2 year fixed rate at 1.28% (3.3% APRC) fixed until 31 October 2022, after which the rate increases to 3.59%. The fee is £1,048 and a cashback of £250.
Fixed or Variable rate mortgage?
Some may like the idea of a tracker mortgage to benefit from any interest rate cut but it’s important that borrowers understand the terms of any variable deal. Some trackers apply a minimum rate, often referred to as a collar or floor. A discounted rate is pegged to the lender SVR so there’s no guarantee the lender will move in line with base rate in any case.
Add to that the fact that some fixed rates have been getting more competitive and we can expect to see more borrowers lock-in their deal. Some two year rates are now below 1.20% and 5 year fixed rates offer a wide choice below 1.50% with some edging below 1.40%.
Barclays also offer a 10 year fixed rate at just under 2%.
Borrowers will need to think carefully before jumping in. Early repayment charges on long term deals usually persist throughout the fixed rate period. And while you can port the mortgage, flexibility will be limited. For example, if top up borrowing is required there is no guarantee that the lender would be able to offer it. That could mean you have to look elsewhere, which would incur an early repayment charge that could amount to thousands of pounds.
What are mortgage rates?
Mortgage rates are the rate of interest charged by a mortgage lender (bank or building society). The interest is charged by the lender as compensation for the money they have lent them in order to purchase a property.
Interest rates are determined by the lender in most cases, and can be either fixed (ie remain the same for the term of the mortgage) or variable (where they fluctuate with a benchmark interest rate). Before you compare mortgages, you need to understand the different types.
Help finding the best mortgage deal
The best mortgage deal isn’t just about interest rates. You need to consider whether the mortgage term is right for you, arrangement fees and more.
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