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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

Looking to remortgage? It's your lucky day

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.’

16 comments so far. Why not have your say?

Roger Savage

Nov 14, 2012 at 12:22

So the solution to the problems caused by easy, cheap credit is to provide more easy, cheap credit...

So, more problems will be caused in the future and those who have savings and didn't borrow recklessly have to pay the price yet again.

Plus, because the govt / BoE is handing banks this money on a plate, they don't want savers, reducing rates even further below the pitiful offerings out there a couple of weeks ago.

Still, at least the money the housebuilders paid to the govt. (or their respective parties) has paid off. It seems that party donors are the only people that get good value out of the corrupt governments that we endure - whatever the party.

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John McCarthy

Nov 14, 2012 at 12:37

So the Cooperative Bank are keen to uphold their pledge to lend £360 million AT ALMOST 8 TIMES THE LIBOR RATE? Have the expressions "The pound in your pocket" and "You have never had it so good." ever had greater resonance? I have long wondered when the FSA are going to tackle the inordinate fees charged for remortaging? The banks love 2 year fixes with more money to be gouged out even from people already with no repayment vehicle in place. I read yesterday that 52% OF London mortgages are interest only repayments. People are using interest payments as rent without a hope of ever paying back the capital except through a sale and downsizin6 in 10 to 20 years. Insane to try and predict that far ahead.

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paul kaye

Nov 14, 2012 at 12:45

people on SVR are being ripped off! most cant remortgage and the fees are another total rip off.

wish the powers that be could fight this corner.

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joe stalin

Nov 14, 2012 at 12:48

So, what is the alternative? Banks need to be more cautious about who they lend to but fear of regulation ensured lending dried up completely. Sure there have been defaults but nothing like the level the cassandras had or are still advocating. Mots people will do what they can to avoid a default i suggest the hiatus we have seen in the mortgage markets has had little to do with banks fearing repayment rather than the Government's ill informed populist attack on the financial sector which has cost the nation billions.

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Anonymous 1 needed this 'off the record'

Nov 14, 2012 at 12:54

Another lifeline for those who spent more then they could afford!

Their greed is just as bad as those they borrowed from.

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John McCarthy

Nov 14, 2012 at 13:07

Worse than anonymous, they inflated the market aided and abetted by bankers and estate agents so much that House Prices are unaffordable. With BTL landlords buying up the bottom rungs which have low risk and high yields, banks that don't want to chrystalise losses, sellers clinging to the past and mortgagees who are cushioned by forbearance it is the prudent and those who found the door to the party slammed shut on them that are paying the price.

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Lucky me

Nov 14, 2012 at 13:10

Santander put my SVR up by 0.5% in October which presumably helps to offset any cheap deals it may have. It really is shameful that they are allowed to hike the rate by this amount bearing in mind the Bank rate is still 0.5%.

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Anonymous 1 needed this 'off the record'

Nov 14, 2012 at 13:27

@ John McCarthy

The prospects for my generation are poor to say the least. Something needs to change and quick.

I am paying rent of £1,000 per month, fantastic credit history, but the banks seem to think I can not afford a mortgage of £750-£800 a month because I dont have a £40,000 deposit (Who does!).

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John McCarthy

Nov 14, 2012 at 13:50

Anonymous1 , sorry to hear your plight. But to shake up the current dire situation we need some financial shock and awe. Unless we have casualties, the housing 'market' will continue to linger on like a Zombie. The surrealness of the the financial situation in Britain is summed up the MPC whose main (sole?) remit is to keep inflation at 2% with a margin of 1%. The bank has been outside its target for something like 18 of the last 20 months and yet refuses to raise interest rates. Micawberism, hoping something will turn up, while many live in Dickensian conditions.

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Anthony Tinslay

Nov 14, 2012 at 14:41

Yes poor rates available on individual savings accounts but have a thought for any Society/Charity account that has money on deposit. Just renewed £17,000 for six months at 'best available' from a High Street Bank - guess what was offered - 0.02% p.a.'

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Nov 14, 2012 at 17:15

Re the article - So what ......... assuming the market picks up in the next 2 -5 years , any mortgage "investor" will have to wake up to a true market rate / value at some point and will not be able to meet the repayments. Mortgage rates are not falling, they are artificially subsidised by QE/ Pensions to inspire investment . The day will come when the lenders have to face market reality and the borrowers will have to suffer the burden.

PS Anthony, why are you choosing the 'best available' from the High St Banks. There is 2.5% min knocking around with no long term commitment.

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wayne roberts

Nov 14, 2012 at 18:02

Why would anyone want to give the banks any money? As soon as interest rates go up everyone's gonna get slaughtered. Don't buy anything until you can buy it mortgage free.

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Peter Callomon

Nov 14, 2012 at 19:50

very altruistic wayne... in a perfect world. Government, Banks, Lending all in one sentence gives as an independent mortgage broker the shivers.

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Anthony Tinslay

Nov 14, 2012 at 19:55

Seymour. Just please show me where a SOCIETY can obtain anything like 2.5% with absolute safety. Perhaps for an individual but no bank seems to think any Society should have similar rates to a private person.

On the mortgage front I cannot complain. When Base rate was 5.5% I put both my children into a mortgage with the same (Eagle) High Street Bank at 0.19% over base rate with no fee. Not long after rates fell rapidly to the current 0.5% - the mortgages now cost them just 0.69% What a bargain that now seems.

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Nov 17, 2012 at 17:36

So as an established home owner in the south east with a modest and decreasing mortgage it's all good news. On the other hand my children (now in their 20's) have little prospect of ever buying a home. Well, not while I'm around.

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wayne roberts

Nov 17, 2012 at 18:02

Yes first time buyers will need homes fitted with Stannah stairlifts and walk-in baths. But unless you're in London property won't even think about going up for another 4 years so doesn't make sense to buy anything now, property can't even keep up with inflation, why borrow 100k to buy property and pay interest on it when in 4 years time that 100k in property will be worth about 85/90k? Of course they want you to buy that mortgage now as they know that you are investing in a depreciating asset. They're so kind to us.

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