Mortgage market picks up thanks to smaller lenders

03 September 2008 / by Daniela Gieseler
British homeowners intending to remortgage in the next few months will have a far better choice than in recent months, as after a period of cautious lending British lenders now venture ahead with some more competitive mortgage deals.

Some of the best offers have been launched by the smaller banks and building societies, which reined in their lending considerably in the wake of the credit crunch but are now returning to the market with some good deals for both fixed-rate and tracker mortgages.

People taking out a new mortgage in the coming months have to face a big decision: to opt for safety or to track the Bank of England base rate, which might be a good bet as some economists expect interest rates to fall to 3.5 per cent in the next year.

However, according to mortgage broker London & Country, the best two-year fixed-rate mortgage deals are currently still cheaper than the best of the two-year trackers. Although the best interest rates are reserved for those with big deposits, there are also some very competitive deals becoming available for people who need to borrow up to 95 per cent LTV.

In order to help first time buyers to get onto the property ladder, Skipton Building Society is just about to launch its "Mutually Exclusive" scheme which allows people to borrow up to 95 per cent LTV if they commit to saving with the Society at the same time. The savings are invested as a guarantee against the loan, meaning they continue to grow at a competitive rate while providing security.

Britannia Building Society offers a rate of 5.44 per cent for people with at least a 25 per cent deposit, with a £999 fee. Repayments on a typical £150,000 two-year fixed-rate mortgage would be £916 a month and the total cost over two years would amount to £22.983.

Cheltenham & Gloucester and Yorkshire Building Society also offer rates of 5.49 and 5.54 per cent respectively, although the offer comes with a high fee of £2,094 and therefore is only suitable for people with a big mortgage.

For those thinking about taking out a tracker mortgage, they should take into account that the Bank of England base rate may increase, pushing up their monthly repayments, and that they will need to ensure that they can still afford to pay their mortgage if this happens.

The current best two-year tracker mortgage is offered by Principality Building Society at 0.49 above the base rate; however, customers wanting to take out this loan will need a deposit of 40 per cent. For those with a deposit of 25 per cent or more, Cheltenham & Gloucester propose a competitive rate at 0.59 per cent above the base rate.

Leeds Building Society has launched a new range of mortgages including two- and three-year fixed rate deals, an offset lifetime tracker and some buy-to-let mortgage products. The rates start from 5.95 per cent, none of them have a higher lending charge, and the three-year fixed rate mortgages are fee-free.

Kim Rebecchi, director of sales at Leeds Building Society, commented: "There are currently many reports in the media saying the best mortgage deals are only available to those with large deposits, however we are offering very competitive deals to those with only a 10 per cent deposit."

"We recognise that many people are struggling in the current financial climate with large increases in the cost of living," Ms Rebecchi added. "Our fixed rate mortgage range will minimise the payment shock for a sizeable proportion of borrowers and reduce monthly outgoings for many more. This will provide peace of mind at an affordable rate.”

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