A persistently low base rate coupled with an on-going price war between lenders has pushed down average mortgage rates down to record lows as house prices continue to edge up.
According to the latest data, the average interest rate on existing mortgages at the end of April this year was 2.92%. However, the average interest rate on new mortgages was down to 2.41% in April, down from 2.49% the month before. April’s figure for average rates is the lowest since records began.
Figures from the Council of Mortgage Lenders show that gross lending for April was 16% higher than 12 months previously at £18.5 billion. However, despite the year on year increase, this figure represented a 30% drop from the previous year, most likely due to massively reduced activity following April’s stamp duty hike on investment properties. March saw one of the highest levels of mortgage activity for a long time as buy-to-let investors and prospective second home owners rushed through transactions in order to avoid a 3% surcharge.
While headline costs for mortgages are at record lows, buyers are being warned to take note of any small print and hidden fees that could push costs back up.
Mark Harris, head of brokerage SPF Private Clients said: “Lenders may offer cheap headline rates to attract borrowers but these often come with a hefty fee so look at the overall cost.”
In particular, he said, customers applying for fixed rate deals should be wary of any early repayment costs.
“If you are choosing a fixed rate,” he said, “don’t fix for longer than you are absolutely sure about. These deals often have hefty early repayment charges if you need to get out of the fix before the end of the term and you shouldn’t assume that just because a deal is portable that you will actually be able to take it with you, as there are no guarantees.”
Data from the Financial Conduct Authority also showed that, while mortgages with loan-to-value of 90 and above have been increasing in popularity since they dropped away after the financial crash, still only a little over 3% of all loans were for more than 90% of the property value.
The majority of mortgages, 66.41%, in the last quarter of 2015 were worth 75% of the value of the property being borrowed against.
However, with the recent introduction of Barclay’s no deposit mortgage designed for first-time buyers, these figures could be set to change over the coming months.
Barclay’s product offers a mortgage with 100% LTV, depending on the income of the borrower, and only requires a parent or other generous benefactor to put a certain amount in a specially designed Barclay’s savings account. While this is almost equivalent to borrowing from parents to pay for a deposit, the money in the account will earn interest and can be withdrawn at a later date.
While mortgages are becoming more affordable, house prices are continuing to increase, albeit at a slower rate than they were at the start of 2016.
According to Nationwide, average house prices in the UK edged up by 0.2% in the month to May this year, while Halifax reported a 0.8% decrease over the same period.
General opinion among analysts is somewhat split regarding the future of house price inflation over the coming year, largely due to uncertainty regarding the upcoming referendum.
Employment rates continue to increase, as do wages, though not by as much as house prices. Affordability is being stretched, leading to a slight dampening on demand, although low mortgage rates will go some way to counteracting that.
Referendum uncertainty is causing a general lack of activity in the economy, which is trickling down to the housing market, particularly on a commercial level.
This lead a majority of Rics members to predict a drop in house prices in the near term, although the combination of relatively strong demand and record low levels of new supply will likely take over in the longer term to keep prices up.
Rics chief economist, Simon Rubinsohn, said: “What we are looking at is a short term drop caused by the uncertainty resulting from the forthcoming EU referendum, coupled by a slow-down following the rush to get into the market ahead of the tax change on the purchase of investment properties.”