Mortgage market feeling the squeeze

With yet more news filtering through this week of the impact of the US sub-prime crisis on the UK mortgage market, borrowers would not be blamed for feeling at least a little alarmed about what it all means for their own situations. Whether consumers are in the process of purchasing a property, remortgaging or looking ahead to the end of their currency deal, it’s never been more important to get advice. With lenders changing product ranges weekly, leading independent mortgage broker John Charcol takes a look at what the credit crunch means for borrowers along with the latest movements across fixed rate, tracker and discount loans.

How will the credit crunch affect mainstream mortgages and what does it mean for borrowers?

Katie Tucker of John Charcol comments, “Along with reduced inflation and the slow effect of previous rate rises, the credit crunch is another reason why bank rate may have reached its peak. It would make little sense for the MPC to increase the cost of borrowing further at this stage. Discount and tracker rates are still priced at such that even if base did reach 6%, variables would still be cheaper than comparable fixed rates.

“Short term money is in great demand and 3-month LIBOR today is 6.89%, an extraordinary 1.14 higher than Bank Rate (BBR). Even mainstream lenders that are lending at BBR, but borrowing at LIBOR, are suffering profit erosion. Borrowers remortgaging now should therefore take advantage of good discounts on offer, because over the next nine months obtaining funds will be progressively more difficult for lenders and is likely to result in them squeezing these discount margins. Abbey has already declared that it will be increasing its tracker rates, as has Bank of Scotland this morning, Standard Life have withdrawn their full range of trackers and not announced replacements. Saffron’s two year discount is still generous with no Early Repayment Charges (ERCs) and so is ideal for borrowers who would like the option to remortgage if fixed rates become more competitive in the next two years. The discount is 2.14 under Saffron’s SVR giving an extremely competitive pay rate of 5.45% (overall cost for comparison 7.6% APR). This gives a low start rate of 5.45% for a fee of £899.

“For those wanting the security of a fix, there are some competitive deals on offer as the marginal drop in swap rates in last two weeks has allowed the majority of mainstream lenders to re-price fixed rates below six per cent. Britannia still has the market leading two year fix at 5.49% with an arrangement fee of £999 (cost for comparison 7.4% APR). John Charcol has a shared exclusive two year fix available from Halifax at a competitive 5.79% until 30th November 2009 which is extremely good value on account of its remortgage freebies and flexible features. The arrangement fee is a flat £1,499 and Halifax do not charge an exit fee, which, whilst not typically payable until the end of the mortgage, saves an average £130 compared to most other lenders (cost for comparison 7.8% APR)

“Skipton has launched a range of long term fixed rates at 5.74% for various periods with tie-ins matching the rate length. For example the ten year fixed rate 30/11/2017 has reducing Early Repayment Charges of 5% down to 1% over the ten years, but allows 10% overpayment per annum.

This also comes with free valuation and legals for remortgages so may suit remortgagers looking for a 10 year mortgage pay-off budget to commit to. (Cost for Comparison 7.2% APR) The seven year fix has a seven year tie in, with rate and fee as before.”