Banks battle for mortgage business as higher lending targets and the Funding for Lending scheme boost supply of money
Banks and building societies are cutting mortgage rates to the lowest levels ever seen, and borrowers can expect further discounts in the coming weeks, according to experts.
Yorkshire building society has cut the cost of its two-year fixed-rate mortgage to just 1.99% at 60% loan-to-value (LTV), taking it to the top of the best-buy tables alongside HSBC. The mortgage has a lower fee than HSBC’s – £995 against £1,499 – and is one of the lowest rates ever offered to UK borrowers. The move is part of cuts across the society’s range and has taken place amid a flurry of activity in the mortgage market.
“Lenders have a higher lending target for the year so the competition is hotting up,” said Daniel Bailey, a broker at Middleton Finance. “There are still good margins for the lenders and I see over the coming weeks more announcements from lenders that they are cutting their rates.”
Barclays has also reduced rates across its range by up to 1 percentage point, and is now offering its cheapest ever deals. Borrowers with a 40% deposit can take a two-year fixed-rate at 2.39% (£999 fee), while at 70% LTV the three-year fixed rate has come down to 2.89% (£499 fee). It has also launched a 95% LTV mortgage at 4.69% designed to allow parents to help their offspring get on the housing ladder by depositing savings with the bank.
Santander and Nationwide have also cut rates on a raft of mortgage deals to as low as 2.69%, with Santander launching three deals at 90% LTV.
Andrew Montlake of mortgage broker Coreco says the Funding for Lending scheme, launched in August 2012 to offer banks and building societies cheap funds for them to pass on to borrowers, is set to gather pace.
Banks have already indicated they will be lending more as a result, and Montlake says this will drive down the cost of borrowing.
“There is every possibility that the coming months will see the cheapest mortgage products available for a generation, perhaps never to be repeated,” he said.
“The initial battleground as ever will be for those A-grade customers who have at least 40% deposit or equity, a decent job and no credit issues. At this level we have already seen two-year fixes dip below 2% and five-year fixes below 3%.”
Martyn Smith, head of mortgage products at Legal & General Mortgage Club, said that at the lower LTV levels “we may be seeing rates that are as low as they are going to get”, but “at the higher LTVs there may be some room for further cuts”.
He added: “We are seeing some better pricing at 70% and 80% LTV, but there is perhaps more that could be done there and it might start to filter through to 90% loans.”
Howard Archer, chief UK economist at IHS Global Insight, said he thinks mortgage rates “can go a little lower still, although how far they can go down must be becoming limited”.
He said funding costs have been pushed down by Funding for Lending and some easing of tensions in the eurozone, which have made banks more willing to lend money to each other.