Keeping an eye on the mortgage market

The mortgage market is currently about as thin as the British contingent in the second week of Wimbledon.

Only 42,000 home loans were approved in May, according to the Bank of England, a figure 28% down on April and 64% down on May 2007.

Lenders, it seems, are still nervous and with rumours of further credit crunch trauma in the US it would take a serial optimist to predict any rapid improvement.

However, with the likes of HSBC and Lloyds coming up with some innovative mortgage products there are still signs of life in the market, and homebuyers should keep their ears to the ground for the best new deals.

The good…

ING Direct is the latest to re-launch its standard variable rate mortgage. The rate, at 6.59% is certainly competitive, but the major bonus is the lack of any arrangement fees, early repayment or valuation charges. With fees from many providers being hiked in recent months a mortgage with an easily understood cost structure is a real plus.

Naturally its availability is somewhat limited. It’ll require a deposit or equity of 25% and isn’t available for loans over 500,000. The income multiples are also fairly tight by modern standards, but that’s hardly surprising given the last 12 months. If you qualify for it, it’s certainly worth considering.

The bad…

Nationwide has typified much of the market by raising the cost of its fixed rate mortgages. Their top two-year fixed rate for homebuyers has jumped from 5.95% to 6.25%, with a £599 arrangement fee and its fee-free two-year has risen by 0.3% to 6.5%.

For those remortgaging it’s best two-year fixed rate is now 6.45%, with a £599 fee. The fee-free alternative is 6.85%. If you’re looking for a new mortgage you’d certainly be advised to shop around. Skipton BS has a two-year fixed rate at 5.79%, at up to 95% loan-value, with a £799 fee.

And the possibly quite ugly

Much hype has surrounded the Rate Matcher Mortgage from HSBC, a deal that promised to match the rates of non-HSBC customers coming off fixed-rate deals, for a further two years. For new customers, though, the ship has now sailed with the provider withdrawing the offer on the last day of June.

HSBC’s hiking of its fees though should act as a timely reminder to potential borrowers to be sure they work out the true cost of their mortgage. With fees approaching £8,000, attractive mortgages aren’t always what they seem.

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