Mortgage market sees an all too brief calm after the storm

Katie Tucker of John Charcol comments, “The last minute withdrawals of rates have slowed this week, with lenders announcing more conservative ranges and some competitive fixed rates, however this calm is unlikely to be maintained: two-year swap rates leapt 10 points from 5.83% on Tuesday to 5.93% on Wednesday following Mervin King’s speech on Tuesday stating he would not reduce Bank rate purely to shield lenders, and that his priority is to keep inflation close to 2%. The temporary fall in swap rates had allowed a few lenders to enter the market with sub-six percent fixed rates, but these now are unlikely to last long so existing good deals should be snapped up quickly.

“UK three month LIBOR is no longer scaling the dizzy heights of nearly 7%, and is currently 6.25% which, whilst lower, is not low enough to curb the culling of discounts and trackers. Nationwide Building Society reflects the current market well, having moved the pay rates on their discount variables and trackers up by 0.2%, but reduced all two, three, five and ten year fixed rates by between 0.05% and 0.2%.

“The sub-prime market is growing into its new skin of lower loan-to-value boundaries and higher pricing as expected. Many sub-prime rates are now weighing in at double figures. Kensington’s “HighAnd” range is only available to 75% now, down from 85%, and the two year tracker remortgage rate is 10.50%. Alternatively, BM Solutions offers a tracker for borrowers with comparable credit history to Kensington’s, at Bank rate + 1.89 for two years, so a pay rate of 7.64%. As many sub-prime lenders re-set their three month LIBOR on 1st October based on 1st September three month LIBOR of 6.4%, they may need to keep their LIBOR tracker margins higher to make up for the last two months’ higher cost of funding.”

What is available for borrowers now?

Tucker continues: “For the borrowers who like to budget by fixing their mortgage payments, Woolwich and Britannia still dominate the top of the best buy tables for two, three, five and ten year rates: Woolwich’s 5.59% two year fix comes with free valuation and free legals for remortgages, for a fee of £995. Britannia offers a ‘no frills’ five year fix at a very competitive 5.39%, for a fee of £999.

“Many lenders already have the long term fixed rates which Alastair Darling feels would protect borrowers. Woolwich’s very competitive offerings also extend to a ten year fix at a 5.59%, with a flat £995 fee, making it very good value as it comes with free legals and free valuation on remortgages, and additionally, is fully flexible. However, as with other ten year fixes, it is the onerous Early Repayment Charges for ten years which are the deal breaker for most borrowers, Woolwich’s standing at 6% during the ten years.

“Discount and tracker rates continue to offer best value for those who wish to take advantage of any possible fall in Bank rate in the near future. Saffron offers a two year discount of 2.40% from its SVR giving a pay rate of 5.19%. This product has no Early Repayment Charges which makes it ideal for borrowers who want to take a good rate now but be free to remortgage to a fixed rate even within the next two years. The 1.5% arrangement fee means that it is better for the smaller loan, but it comes with a refund of valuation and free legals on remortgages. For larger purchases, Nationwide’s two year tracker is good value with its flat fee of £1,499 for a sub-Bank rate of 0.27% under Bank rate for two years, giving a pay rate of 5.48%. Additionally this mortgage is fully flexible, allowing overpayments, underpayments and borrow-back, so is ideal for borrowers who may wish to use bonuses in the New Year to bring down their payments or the mortgage term, then use them for payment holidays or home-improvements later in the year.”

Tucker concludes: “For borrowers with a sub-prime or adverse mortgage, it is vital this year they make all of their mortgage payments in full and on time, and re-prioritise to reduce the loan-to-value of their mortgage if possible by paying extra whenever possible. High loan-to-value, heavy adverse remortgage options from now on will be slim, and in some cases, non-existent.” (The Cost for Comparison for sub-prime business carried out through Charcol is 8.3%).

For more information, visit charcol.co.uk.