With lenders battling for market share and cutting rates, Hina Bhudia, one of our Partners, offers further insights on what this means for homebuyers and remortgagers looking to secure a competitive deal.
Q: I'm seeing a lot in the news about a mortgage price war, what does that mean?
Lenders are battling for market share. A perfect storm of ultra-low interest rates and a glut of funding available for lending as consumers saved during the pandemic has sparked some serious competition across the high street – everybody wants to grab as much business as they can.
Halifax last week launched a two-year fixed deal at a rate of 0.83%, which is now the cheapest deal on the high street. Most of the big banks have also announced cuts to their range, which is fantastic news for borrowers.
Q: That’s cheaper than my deal, can I switch?
Perhaps, but for now it’s confined to lower loan-to-values (LTV). Buyers with a good credit rating and significant amounts of equity or large deposits can enjoy some of the cheapest deals we’ve ever seen. That said, rates are changing almost on a daily basis, so regardless of your circumstance and LTV ratio, it’s best to keep a constant eye on what’s on offer.
Q: Could rates go any lower?
Very marginal cuts could be on the cards but 0.83% is likely to be as low – or close to as low – as they’ll go in this cycle. However, it will reach a point for lenders where this no longer makes commercial sense so rather than rates dropping much further, we expect more movement to take place at higher LTVs over the coming months. That could benefit buyers who were overlooked during the pandemic – particularly first-time buyers.
Q: Should I pay the early repayment charge to switch to a cheaper deal?
Everybody's circumstances are unique, so whether paying the early repayment charge makes sense will depend on a multitude of factors, including the differential in the interest rates between your current deal and the one on offer, the size of the early repayment charge and the scope of the package the new lender is offering. For some it might be worth considering, so speak to a whole of market broker to better understand your options.
Q: What about lending criteria, I’ve heard it’s pretty strict?
During lockdown, some customers were disheartened to find they were unable to secure terms or borrow the amount they were expecting due to a tightening of certain lending criteria – but that is starting to ease as banks try to attract more business.
A lot of the banks went from offering five times income to four times, but the door is starting to open back up on this and many are now taking bonuses into consideration. It is also becoming a little easier for the self-employed to secure terms so there are a number of changes being made.
Q: Should I lock in a rate for the long term?
If you’re not planning on making any changes in the near future and you have a relatively small mortgage amount it might be worth locking in your mortgage for a longer period rather than paying an arrangement fee every two years to take a new product. But every customer is different, so it’s important you speak to a good adviser to find out what deal would work best for you.
Q: How long will rates stay this low?
Mortgage rates as low as the ones we are currently seeing will not last forever, particularly as inflation inches up and the Bank of England comes under increasing pressure to rein this in. That said, I don’t anticipate them moving for a while yet – particularly given the critical role they’re playing in pumping the economy, which is good news for customers.
If you, a family member or friend is looking to buy a property in 2021 and would like to discuss the options when it comes to securing a mortgage, speak to us. We know all the major lenders in the marketplace and can help find the most cost-effective and suitable mortgage for you.