Important:

This article is for information purposes only.

Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.

There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.

Cash-rich borrowers being offered cheaper mortgages

cheaper mortgages

There are now 56 fixed and variable rate mortgages available, down from 779 in March, according to Moneyfacts analysis

Cash-rich borrowers are being offered ever-cheaper mortgages while lenders have hiked prices for first-time buyers with small deposits for the fourth month in a row.

With 95 per cent deals having vanished from the market, 90 per cent deals have become a lifeline for would-be homeowners struggling to save a deposit worth tens of thousands of pounds.

But since March, mortgages for those with a 10 per cent deposit have become both scarce and expensive.

Appetite to lend on 90 per cent mortgages has dropped significantly with Moneyfacts analysis revealing there are now just 56 fixed and variable rate products available, down from 779 in March.

The average two-year fixed rate 90 per cent mortgage now charges an interest rate of 3.76 per cent, significantly more than the 2.57 per cent available before the first lockdown.

This means the average customer seeking a 90 per cent mortgage on a £200,000 property over a 25-year term, should now expect to pay about £927 a month.

To put that in perspective, the same customer on average would have been paying £814 a month if applying for that same mortgage back in March.

The picture is little better even for those able to muster up to a 15 per cent deposit, with average interest rates on 85 per cent two-year fixed deals now at 3.12 per cent when in July the average was just 2.11 per cent.

However, for equity-rich homeowners who have enjoyed years if not decades of rising house prices, mortgages are getting cheaper.

Homeowners able to remortgage or buy with 40 per cent equity or deposit are being offered lower rates than they were before the pandemic.

For a home owner looking to remortgage or move home with a 60 per cent loan-to-value mortgage, the average two-year fixed deal stands at 1.77 per cent, lower than the 1.8 per cent average seen at the beginning of March.

Experts say the diverging cost of home ownership is a result of caution within lenders, which are worried about the economy, job losses and potential falls in house prices.

Chris Sykes, mortgage consultant at Private Finance, said: Lenders are still looking to compete aggressively on the lowest risk lending propositions in the market. That means those who have mortgages, have a proven track record of making payments and own property that for most will have increased in value since purchase, at the earliest two years ago.

The availability of 85 per cent mortgages is healthier than at 90 per cent, though these have also reduced significantly with 344 deals available today compared to 664 prior to lockdown.

Ben Gallagher, commercial strategy developer at Habito, puts this down to lender concerns about the future economic impact of Coronavirus, the future of house prices and soaring consumer demand.

He said: Almost all lenders at the moment are struggling operationally so as soon as one drops its rates it becomes overwhelmed by a surge in demand and then has to put its rates back up again.

According to a recent report from NAEA Propertymark, borrower demand for housing has risen to the highest level recorded since June 2004, with buyers rushing to capitalise before the stamp duty holiday deadline on 31 March.

Important:

This article is for information purposes only.

Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.

There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.