Halifax-Abbey price war could benefit mortgage borrowers

18 August 2008 / by Rachael Stiles
The UK's two biggest mortgage lenders, Halifax and Abbey, have entered a price war with each other to attract new mortgage customers, marking the first instance where the two lenders have aggressively gone to war for new borrowers.

According to The Times, the banks are competing in the realm of tracker mortgages sold through brokers, but first time buyers need not apply for the competitive tracker deals, however, as they are only looking for homeowners with a large amount of equity or significant deposit.

Halifax has cut its rates by 45 percentage points, though only to those borrowers with a deposit or equity in their home worth 25 per cent of the property's value, and Abbey has launched a two year tracker mortgage, at 5.69 and with a fee of £1,950, also only available to borrowers who have a 25 per cent deposit.

David Doulton, director at Fairinvestment.co.uk, says that the move from Abbey and Halifax is a promising sign for the stalled housing market.

"This is great news from our two biggest lenders for those homeowners who have enough equity or a big enough deposit to be eligible for these deals." he said.

"Times are tough for British households, and mortgage lenders are in a position to ease the current conditions in the mortgage and property market. It is good to see that they are taking their responsibility seriously and helping to bring rates down. Hopefully more lenders will follow suit."

First time buyers will have to wait, however, as Halifax has no fixed rate deals for anyone without at least a 10 per cent deposit. Those who borrow 95 per cent LTV from the Halifax could get a three year fixed rate at 8.04 per cent – an average monthly repayment of £1,549.

Meanwhile, Abbey also offers no deals for two year fixes above 75 per cent Loan to Value, offering just one 85 per cent LTV mortgage at 7.09 per cent, for which the fee comes with a price tag of £2,499.

The housing market continues to dwindle as first time buyer mortgages remain difficult to secure at affordable rates for those trying to get a foot on the property ladder, with experts predicting that this will stunt any potential recovery of the property market.

The Woolwich has also joined the rate war, offering a two year fixed rate mortgage at a rate of 5.99 per cent, but this requires a fee of £995, and a 40 per cent deposit, an increasingly common requirement among lenders.

Lower-risk borrowers are now like gold on the housing market, as mortgage lenders strive to improve the quality of their loan books and avoid risky homeowners who have little or no equity in their homes and are less than likely to keep up with repayments.

Building societies Skipton, Cheshire and Newcastle have also announced rate cuts this week, which is hoped to encourage more borrowers to break the current cautious trend of waiting to see what happens in the housing market.

© Fair Investment Company Ltd