Home buyers have more choice of mortgages than at any point in the past decade, and low-deposit deals are becoming cheaper – so if you’re an aspiring home owner, is buying now easier than before?
There are now over 5,000 mortgage deals available in the UK for the first time since March 2008, research from Moneyfacts found.
Which? looks at the trends in the residential mortgage market, and how they might benefit you as a buyer.
- Need help finding the best mortgage deal? For expert, impartial advice, call Which? Mortgage Advisers on 0800 2942 849.
Mortgage deals hit new high
As of July 2018, buyers could choose from 5,035 residential mortgage products – up from 4,791 just one month before, data from Moneyfacts shows
Mortgage deals have hit a new milestone, with more than 5,000 deals available for the first time since the 2008 financial crisis forced the market to shrink.
For buyers, this means more choice of deals with a wider range of loan-to-value ratios and rates. But the nature of deals is changing too.
Of the current offers, a huge 82% are fixed-rate deals – compared to just 54% of available offers in 2008.
Fixed-rate deals are popular among buyers, offering protection from rate rises for a set time period. While you often pay slightly more interest, you have the peace of mind that your rate won’t change over coming years.
- Find out more: finding the best mortgage deals
Cheaper 95% mortgages
Choice is a boon for home buyers, but are mortgages getting any cheaper? As an overall trend, rates have been creeping up in the past year, meaning home buyers have to be prepared to spend more on interest.
Between July 2017 and July 2018, the average rate for all fixed-term mortgages jumped from 2.77% to 2.95%.
Yet in the same period, the mortgages with the smallest deposits bucked the trend.
For 95% mortgages, which require a deposit of just 5%, deals became cheaper, with the average fixed-rate dropping from 4.23% last July to 4.06% today.
Meanwhile, fixed-rate 90% mortgages – available with a 10% deposit – are now at the same level as last year, 2.89% on average.
Looser affordability criteria
In the wake of the financial crisis, lenders were required to introduce strict lending criteria to prevent buyers borrowing more than they could afford to repay.
As a general rule, most borrowers are capped at borrowing 4.5 times their income, and lenders have set rules for weighing up what counts as income or as essential living costs.
Now, recent trends suggest lenders are starting to loosen their grip.
Coventry Building Society last week announced its intermediary arm would change its criteria to be more favourable to people earning between £25,000 and £70,000.
In particular, the lender will now include child benefit as part of an applicant’s income, reduce the number of things counted as ‘essential living costs’ and stop factoring in the living costs of financially independent adults at the same address – which should allow you to borrow more.
Earlier this week, Clydesdale Bank Intermediaries introduced a new mortgage criteria for professionals – including accountants, architects, dentists, doctors, lawyers and pilots, among others – which would allow them to borrow up to 5.5 times their income.
Overall, data from UK Finance found the average ‘income multiple’ – meaning the loan divided by the buyer’s income – had crept up over the past year, from 3.34 in March 2017 to 3.41 in March 2018.
- Find out more: applying for a mortgage
Mortgage approvals fall
The above trends may seem to be good news for buyers – yet the number of loans approved has decreased over the past year, with the number of home mover applications approved down 7.8% year on year, according to UK Finance.
The housing market has seen a similar slump in activity. Though house prices are continuing to climb, price growth across the UK dropped from 4.8% year-on-year in April 2017 to just 3.9% in April 2018 – both of which are well-below the peaks of more than 9% seen in 2014, ONS data shows.
Indeed, lenders may be offering more competitive deals to attract new buyers, as the level of activity in the sector softens.
- Find out more: improving your mortgage chances
Future of mortgage rates
The Bank of England base rate has a huge impact on the rate you pay on your mortgage – as the base rate increases, lenders tend to pass these increases along to their customers.
Between July 2007 and February 2009, the base rate dropped from 5.75% to just 0.5%, a level it stayed at until August 2016, when it dropped again to a record-low of 0.25%.
In November 2017, the base rate nudged up to 0.5% and further hikes are expected later this year.
This suggests that interest rates could be set to rise in the near future, although lenders may combat the drop-off in interest with more attractive offers.
What does this mean for home buyers?
If you’re currently looking for a mortgage, you have more options than previously – and if you have a limited deposit, you may even be paying less interest than last year.
At the same time, rates have started rising on many other deals, and are expected to jump further. As such, if you’re thinking about buying, getting a mortgage before rates increase might be a savvy move.
While house prices are continuing to grow, and in many areas have far out-stripped wage growth, some signs are suggesting the market may be starting to slow down. If this is the case, it may be worth monitoring house prices in your area to see whether prices begin to ease off.
How to find the best mortgage deal?
When you’re shopping around for a mortgage deal, it’s important to weigh up your options carefully to find the best one for your circumstances.
The following tips might help:
- Fixed-rate versus variable-rate? Fixing your rate can be sensible, especially when rates are expected to rise in the near future. On the other hand, variable rates tend to be slightly lower – but you trade-off the security of knowing your interest rate.
- How long to fix for? If you want a fixed rate, think carefully about how long you can commit to that mortgage deal. Five-year deals are becoming increasingly attractive, but you may face an early repayment charge if you need to end it early – for example, to move house or remortgage.
- How much deposit can you put down? As a rule of thumb, the larger your deposit, the better your rate. If possible, you could save money by waiting a little longer to save up a 10% or 15% deposit, instead of 5%. Then again, if prices are rising fast, you may benefit from getting into the market sooner rather than later.
- Do you need a hand? There are a number of schemes available to help home buyers, from Help to Buy to shared ownership. Your family and friends may also be able to lend a hand, through a joint mortgage or guarantor mortgage.
- Which lender is best for you? Different lenders have different criteria, and rates vary dramatically. So make sure you shop around to find the best lender for you.
If you need help finding the best deal, a mortgage broker can help you understand your options and make an application. You can request a free call-back from Which? Mortgage Advisers by filling out the form below, or you can call 0800 2942 849.
Your home may be repossessed if you do not keep up repayments on your mortgage.
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