Mortgages Under 5% Again
It seems that the news is always bad these days for homeowners and would-be first time buyers. However, there may be a glimmer of hope.
Remember when mortgage rates were below 5%? Some people may still have a mortgage at this rate from when they fixed two or three years ago. However, with interest rates rising since August 2006, the 5% rate quickly disappeared, and with the credit crunch making borrowing even harder these days, there didn't seem much chance of seeing a 5% mortgage for quite some time.
But wait! In the last few weeks a number of two-year fixed rate offerings from providers Leeds Building Society, Yorkshire Building Society, Newcastle Building Society, First Direct and Giraffe Money have come in under 5%.
Is this a sign of good news to come in 2008?
Katie Tucker of mortgage broker John Charcol says: "The good news for borrowers is that two-year swap rates (on which lenders base fixed rate prices) have finally fallen under the 5% mark in anticipation of another rate cut, so fixed rates are now becoming much more competitive. Even so, trackers will prove best value for most as Bank rate is widely expected to fall to 5% or lower this year. Discounts could also prove as good value if lenders respond to Alistair Darling's call to pass on the full discount of any Bank rate cut."
Although this will be good news for some, not everyone will see the benefits for their own mortgages. The ongoing effects from the US sub-prime crisis mean that banks and building societies are not as willing to lend to risky borrowers as they used to be, and for these borrowers, mortgage rates are likely to continue to rise.
Thus, people with poor credit history, low equity in their house or in areas of weak prices, will find it hard to remortgage at preferable rates or get a new loan at all.
A further threat to lower mortgage rates is the battle against inflation as the Bank of England will be reluctant to lower the base rate if it feels that inflation is going to rise much above its current level of 2.1% and the Bank's target of 2%.
First Direct now has a two-year fixed rate offset mortgage at 4.75%, for loan-to-value of up to 80%, a £499 arrangement fee and a £999 booking fee.
Leeds BS is offering a two-year fixed rate mortgage at 4.99%, for loan-to-value up to 90%, and the fee is 2% of the loan - making it more expensive the higher the loan.
To compare the true cost of a two-year fixed rate, borrowers need to work out the total of all monthly repayments over the whole initial deal period and add all fees charged. Although sub-5% mortgage loans are making a comeback, it is essential that potential borrowers do their sums and avoid being lured by headline grabbing figures. If the bank rate is cut further in months to come, loans under 5% should make a comeback, but homeowners would be wise to look before they leap.
Are you eligible for a sub-5% mortgage? Are you aware of current deals on the market today? Get your free, no-obligation mortgage or remortgage quote from MoneyOutlet today and tap into the Whole of Market to find the best deal to suit your needs. Get Your Quote Now!
Published on January 23, 2008
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