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Looking to remortgage? It's your lucky day
Homeowners looking to remortgage should take the opportunity presented by the government's new lending initiative.
by Michelle McGagh on Nov 14, 2012 at 07:39
Homeowners may be struggling with falling house prices and even negative equity, but for those looking to remortgage there is a silver lining: mortgage rates continue to fall thanks to the government’s lending scheme.
In August the government made £80 billion available to banks to try to boost the mortgage market as part of the Funding for Lending scheme.
Although the initiative hasn’t been such good news for savers, homeowners with a substantial deposit or a decent amount of equity in their homes are starting to benefit from the competitive lending environment.
Under the Funding for Lending scheme, the more banks lend the better the rates they get on money borrowed from the government, so it is in their interest to grow their mortgage business, and they can only do this by being competitive on rates.
David Hollingworth of mortgage brokers London & County said: ‘The rate [the banks] pay is linked to them growing net lending – the more they lend the cheaper the money is. The government is trying to encourage new lending rather than recycling debt which is what the market needs.’
Banks are also benefiting from low Libor rates, the rate at which banks lend money to each other. The three-month Libor has fallen to 0.52% from 1.09% at the beginning of the year.
Mortgage rates are falling
For those with 60% loan-to-value (LTV) or less the rates are particularly low, and Hollingworth said ‘there are more compelling products coming to market’.
In the past few weeks 10 lenders have slashed their rates. ING cut its two- and five-year fixed-rate deals by up to 0.75%, and Nationwide cut all rates, including its two-year deal for those with 30% deposit to 3.09% from 3.49%.
HSBC made cuts of between 0.2% and 0.5%, and took its two-year fixed rate to 2.44% for those with 60% LTV. Tesco Bank is offering an even better deal for those with a 60% LTV: a two-year fixed rate deal is currently at 1.99%.
‘You are starting to see Funding for Lending bring improvements and stability to the market. More lenders have taken up the offer of cheap lending and they have been getting more competitive, especially for those with big deposits,’ Hollingworth said.
This is good news for homeowners, who have seen their property prices and savings taking a battering. If you are looking to remortgage your home, now is the time to do it.
Funding for Lending will run for just four years, or until the money runs out, although there are rumours of a second round if this one proves to be a significant boon to the economy.
A slow filtering
Those who have their feet firmly on the property ladder are benefiting from good rates, but if you are a first-time buyer you may have to wait a little longer to feel the effects of cheaper lending.
Hollingworth said there is evidence that first-time buyer deals are getting better, although it was natural that lenders should offer better deals to customers they consider safer to begin with.
‘[Those with equity in their home] have seen the biggest shift because… for lenders they are low risk and have lower capital requirements,’ he said. ‘It was inevitable that initially the lenders would focus on harvesting the plain vanilla, low-risk end.’
He added that there was not much competition in the 90% LTV market but there are signs of improvement. 'ING has got some good 80% LTV deals and the Co-operative Bank have a good 85% and 90% deal – there are signs that [cheap lending] will filter through [to the higher LTV market],’ he said.
The Co-operative has launched a 3.99% two-year fixed rate mortgage for 90% LTV, with no fee, as part of the bank’s pledge to lend £360 million to first-time buyers in 2012.
The Co-operative Bank's head of mortgages, James Hilton, said the government’s funding scheme made should not just focus on better rates for those remortgaging.
‘We welcome the Funding for Lending scheme as a route to boosting the housing market and the wider economy, but believe this goal will only be achieved by increasing the availability of mortgages to first-time buyers rather than just focusing on remortgage customers,’ he said.
‘By offering a market-leading rate fee-free to those with a 10% deposit, we hope to remove some of the barriers to getting on the property ladder and offer first-time buyers a helping hand.’
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