Mortgage Price War takes an unexpected turn

Fixed rate mortgages had dominated market news in recent weeks as HSBC, Nationwide and Santander had slashed their rates and offered products under 3% for the very first time. In an unexpected twist however, one of those key products has now been withdrawn.

HSBC’s five year fixed deal was released just four weeks ago but the bank has announced that it is being removed from the market. The 2.99% fixed offer was the first of the sub 3% products to emerge and was therefore responsible for starting the price war, but as of the 16^th August, it is no longer available.

While the mortgage was the lowest fixed rate to hit the high street, it did require borrowers to find a minimum 40% deposit in order to secure the deal. Santander, Nat West and Nationwide were swift to follow with differing rates and terms and while the deposit requirements had still to be lowered sufficiently to help the majority of first time buyers, the moves were welcomed.

HSBC have insisted that this was always likely to be a limited time offer and that the product has been withdrawn simply because all of the funds allocated to it have been lent out to home buyers.

“It was designed to bring in business – we knew it would be popular,” a spokesperson said.

Reaction to the news has been mixed but some mortgage brokers have highlighted the fact that while the price war may have grabbed the headlines, it was irrelevant for first time buyers along with many others.

“While a mortgage rate war has broken out in recent weeks, with five-year fixes in particular falling to record lows, these are available only to those with sizeable deposits of at least 40pc,” said Mark Harris of SPF Private Clients.

“First-time buyers with modest deposits continue to pay a premium on the rate, even though they can least afford it. For example, the best five-year fix for a buyer with a 5pc deposit is at 5.99pc from Leeds Building Society.”

David Hollingworth of London and Country Mortgages added,

“Despite improving rates the mortgage market remains constrained and so meeting credit scoring requirements can still pose problems.”

Meanwhile, there are no suggestions that other lenders are going to follow HSBC’s lead and withdraw their lowest fixed rate products from the market. HSBC themselves still offer fixed rates starting from 3.29% so while this is another story that’s taken more than its fair share of column inches, it seems to have little effect on the majority of potential borrowers.

A Slow Down in Mortgage Rate Rises?

The theme for much of the latter half of April and the beginning of May was one of continued mortgage rate rises and the threat of an increased number of households faced with a significant increase in monthly payments. The knock on effect that this had would conceivably leave more households in the so called ‘mortgage trap’; unable to afford higher payments but not in a position to switch lenders as they were unable to meet stricter criteria.

However, there are suggestions within the industry today that the mortgage hikes may soon be coming to an end and Ray Boulger, senior technical manager at mortgage lender John Charcol leads the voices making this suggestion.

“I think that this upward rate movement that we have seen, we are probably fairly close to the end of that,” Mr Boulger said.

“We have seen over the last two months or so, a series of lenders continuing to push rates up – typically only by ten or 20 basis points at a time, but it is a steady increase – and most lenders have increased their rates several times over the last few months simply to try to stem the flow of business,” he added.

The reaction came after several weeks of mortgage rate hikes which have been tempered to some extent by cuts from some lenders. The overall picture tends to balance itself out, although that may not be welcome news for those in the ‘mortgage trap’ who have suffered at the hands of a recent increase.

“We are now coming to the stage where we are seeing some lenders put rates up but some lenders cut them, whereas a few weeks ago nearly all the rate changes were upwards,” Mr Boulger added.

“So there are signs that this upward movement in fixed-rates is coming to an end.”

The reaction comes in reply to a survey from Which? that pointed to worrying signs in the housing market with significant percentages of property owners facing difficult periods if their lenders were to increase their monthly payments. That survey showed that 70% of people interviewed held fears of prospective interest hikes while 14% were already having difficulty in paying their mortgage.

Elsewhere, monthly figures released by Nationwide claim that property prices fell by 0.2% in April and are now 0.9% down from the same period last year.

Overall, this may point to mixed news depending on where you are in the property chain. For first time buyers it suggests that this is a good time to get onto the ladder but if your variable rate is increasing and you can’t switch lender, news of impending cuts will come as little consolation.

Mortgage Lending Increases But Rates Do Too!

Figures released by the Buildings Societies Association (BSA) show a rise in gross mortgage lending of 32% in January and the report goes on to call this rise ‘significant’. However, any optimism felt as a result of these findings may have been tempered by the announcement that both the Halifax and Royal Bank of Scotland were increasing their interest rates, blaming increased funding costs.

The BSA’s figures showed that the 32% rise resulted in an increase in lending from 1.4 billion to 1.9 billion from the previous month and this represented a rise of 54% on the findings declared for the same period in 2011. However, the stamp duty window, which is being cited as a reason for most positive signs in the property market is also being credited for much of this increase.

The window closes later this month and it’s widely accepted that any spike in lending and sales is down to a rush of homeowners looking to take advantage of the waiving of the 1% fee for properties between £125,000 and £250,000.

“Lending activity by mutuals was up significantly in January compared to the same month last year, continuing the trend of increased lending by the mutual sector seen throughout 2011,” said Adrian Coles of the BSA.

The news comes shortly after the association reported a two year high in mortgage approvals which had risen in January by 7% to 58,728. However, the Council of Mortgage Lenders rather summed up the current position, claiming that the figures were slightly obscured by the Stamp Duty Holiday.

“We are now likely to see an unhelpful bunching of activity prior to the concession’s expiry, followed by a dip,” the Council said.

That dip could also be affected by a rise in mortgage rates which has been led by Halifax and the RBS, both of whom announced their increases last week.

Halifax announced that it would be raising its variable rate from 3.5% to 3.99%, adding that the process of raising money through retail savings and wholesale markets was proving to be very expensive. Meanwhile, the RBS confirmed that it was raising the rate on two of its products by 25 basis points.

The two lenders have already been joined by Santander in increasing its own rates and more are expected to follow.

“If lenders continue to raise their rates those with the smallest deposits – the first-time buyers – will get hit hardest, because the risk they pose means they cost more to lend to,” said Mark Harris at broker SPF Private Clients.

As with much of the current announcements within the property market, it appears that the true picture won’t be known until the stamp duty holiday ends and any increase in rates takes hold.

Seesaw Mortgage Rates Predicted for 2012

So far, the first month of the New Year has seen many property experts predicting a sustained and consistent rise in mortgage rates with the general feeling being that they had reached the lowest point that they could possibly attain. Those reports have been tempered today by suggestions that rates will increase shortly but this will precede a period of rise and fall as the year progresses.

Once again, uncertainty over the economy has been blamed by those who have hinted at the forthcoming rate changes while concerns over the Eurozone crisis are believed to have led to a recent spate of increases from various lenders.

Over the course of the last few days, several major lenders have increased their rates in line with expectations and they are expected to be followed by many more home loan providers in the coming days. This news is very much in line with predictions at the start of 2012 but until now, there hadn’t been suggestions of a period of ‘ebb and flow’.

Andrew Montlake of mortgage brokers Coreco suggests that with the bank rate holding firm, lenders are set to adjust their rates upwards and downwards until they get the level of business that they are looking for,

“We are going to see a period in which the Bank rate remains stable, so lenders will manage the business they want by increasing or decreasing their rates,” Mr Montlake confirmed.

In fact, there have even been some rate reductions by some lenders for first time buyers and these go some way to confirming the likelihood of these new predictions. Mr Mortlake went on to claim that this volatility in the market will continue for the first half of the year at least and is set to continue until more is known with regards to the Eurozone crisis.

A likely outcome in the short term is a huge disparity in available mortgages as some lenders increase their rates while others start to apply reductions. The advice in this instance is quite simply to shop around.

“It really does pay to shop around at the moment if you are looking for a mortgage as some lenders are much more expensive than others,” confirmed Aaron Strutt, of Trinity Financial.

As predictions turn into confirmed rate changes, the mortgage picture may look confusing to some but if you are prepared to look hard enough for reductions, these developments could be good news for many.

Mortages Could Take a Hit from the EuroZone Crisis

Some high street mortgage lenders including Woolwich, Santander and Halifax have increased their tracker rates on their products.

This increase follows a rise in the interest rate at which banks lend to one another.  Libor, the latest inter-bank offered rate, has been inching higher and higher amidst worries over the Eurozone crisis.  A rise in Libor could indicate that banks are becoming increasingly less confident in lending to each other.

“It is a diluted version of what happened after the Lehman crisis,” said David Hollingworth, from mortgage broker firm London and Country.

“We could be seeing a significant reversal in rates. Over the summer mortgage lenders were competing harder with each other. Now that is changing.”

Even though the average tracker rate has not changed hugely since the summer, there are indications that suggest the direction is going to edge up rather than down.

The Chelsea Building Society recently increased its competitive tracker mortgages by 0.2%.

However, it’s not all bad news.  It doesn’t mean that those looking for a mortgage will need to pay thousands more, but those expecting the rates to fall significantly may need to rethink their approach and their finances.  If you are looking for a new property it’s always a good idea to check out the whole of the market so that you can get the big picture on rates to see which is best for your needs.

Over the last few weeks, Halifax has also raised its two-year tracker to 3.34% whilst the Woolwich increased its tracker rate by 0.4%.

In a similar move, Santander increased its Abbey lifetime tracker from 2.95% to 3.09%.  ING and Nationwide are also increased rates on their products.

“Several lenders are edging up trackers,” said Ray Boulger, of mortgage broker John Charcol.

What happens next “depends on how fast the euro crisis develops”, he said.