Mortgage rates have been dropping since the bank of England announced a surprise rate cut of half a percentage point, but lenders are still withdrawing the best deals despite the Government's £50billion bail-out plan.
Following the Bank of England's Monetary Policy Committee's decision, a significant number of lenders immediately announced that they would be dropping their mortgage rates in line with the 0.5 per cent cut in the base rate.
This week saw the Government announce plans of a part-nationalisation of some of the UK's biggest high street lenders in order to bring stability to the financial markets and ease banks' fears over further losses.
But, amid ongoing turbulence in the economy, mortgage
providers continue to withdraw their higher loan to value (LTV) deals, forcing first time buyers and those with little equity in their homes out of the market.
Lenders are pulling mortgages with a LTV of 95 or 90 per cent out of the market. There are now only 3,281 mortgage products available, according to figures from Moneyfacts.co.uk, which is the lowest figure yet since the credit crisis began last summer.
Whereas during the property and mortgage boom of the last decade products were based largely on pricing, lenders are now focussing on risk, which is reflected in the scarcity of loans offering 90 per cent LTV or above, and has caused 100 per cent mortgages to become practically extinct with just a few deals left at inflated prices.
The best deals for mortgage customers are now to be found in 60 per cent LTV loans, where a 40 per cent deposit is required. Unlike higher LTV mortgages, the number of deals on the market offering a maximum of 60 per cent LTV has risen by 84 per cent to 155.
However, all is not lost for those who do not have substantial deposits saved up or a lot of equity in their homes. Darren Cook, mortgage expert at Moneyfacts.co.uk, says that while choice is reducing for mortgage customers, "there are still enough products out there for borrowers to try and find a suitable deal that suits individual circumstances."
Mortgage figures from Moneyfacts.co.uk reveal that the average cost of a mortgage has come down in the last 12 months but they have become scarcer. For example, the average two year fixed rate mortgage
now costs 6.32 per cent, down from 6.90 per cent in August 2007, while a two year tracker mortgage
will now cost an average of 6.28 per cent, down from 6.58 per cent last year.
Mr Cook explained: "The difficulties lie in the lack of liquidity within the market and providers having no appetite or being unable to lend on a larger scale. In essence, he said, the figures show that "mortgages are getting a little cheaper, but the stock rooms are currently nearly empty."
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