We’re in the middle of a “high-street mortgage war”, reports the Financial Times. Co-operative Bank is currently winning – it has slashed its best-buy, five-year fixed rate to 2.79%. Meanwhile, Abbey for Intermediaries, the somewhat clumsily named broking arm of Santander, has launched a best-buy rate on a two-year, fixed-rate deal of just 1.99%.
So why are banks and building societies suddenly racing to cut rates? The main reason is that interbank funding rates (the rates at which financial institutions borrow from and lend to each other) have fallen recently. The credit for that is being given to the Bank of England’s Funding for Lending scheme, which is pumping money into the banking system. That is at least part of the reason that gross mortgage lending rose by 14% between September and October, and is predicted to hit £144bn for 2012.
Ten thousand first-time buyers took out mortgages on London properties between July and September, says the Council of Mortgage Lenders – the highest number during a single three-month period for almost three years. But don’t be fooled by the headlines into thinking it’s easy to bag one of these cheap deals.
For starters, you might not qualify. The Co-op five-year deal is only available to those with deposits (in the case of first-time buyers), or existing equity (in the case of existing mortgagees) of a whopping 40% or more (so £80,000 on a £200,000 house). Although Co-op has committed to consider more applicants on their individual merits, it’s clear that only a pretty well-off (in property terms at least) buyer is going to get a look in here. If you only have a 10% deposit, then the rate for the same term leaps to 4.79%.
The new deal is available on loans of up to £1m and comes with a £999 arrangement fee. That’s somewhat lower than the £1,999 fee you’ll pay to secure First Direct’s five-year 2.89% deal, or the £2,495 that was needed to secure the RBS table-topping 2.95% rate earlier this year. Meanwhile, anyone hoping to bag the best two-year fixed rates will need to move fast. The Abbey deal expires today and the previous best buy from Tesco (both requiring a 40% deposit or equity) has already been pulled.
The next best offer is the Leeds Building Society’s two-year fix at 2.54% if you have at least a 25% deposit. Homebuyers who miss out this time though can take some comfort – house prices are falling in most regions outside the capital and could plummet in London too once foreign ‘safe haven’ funds dry up. So at least by waiting you might get a cheaper property – and maybe even a better mortgage deal in time. by Tim Bennett