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First-timers miss out on best mortgages for years
Jonathan Prynn, Consumer Affairs Editor12 Jan 2009
MORTGAGE rates have plummeted to their lowest level in five years, but only for borrowers with large deposits, official figures reveal today.
For first-time buyers who have less than a quarter of the value of their target property in up-front cash, there is still no respite from the lending drought.
Today's Bank of England statistics show how new tracker and standard variable rates have dropped with unprecedented speed.
By the end of last year the cost of the average two year tracker- which rises and falls in line with the Bank of England base rate -had fallen to 4.95 per cent. This was down from 5.78 per cent in November and a peak of 7.04 per cent in October.
The last time trackers cost less than five per cent was in January 2004.
For standard variable deals, the fall was from 6.34 per cent on average to 5.38 per cent, the lowest since November 2003.
The price of fixed-rate mortgages has also come down, although less spectacularly and only for buyers or owners needing to borrow 75 per cent or less of the value of their home.
A two-year fixed-rate mortgage costs 4.79 per cent on average, while a typical five-year fixed rate was 5.31 per cent.
These are the best rates for borrowers with plenty of equity since the spring of 2006.
Mortgage experts said the latest official data did not yet reflect the impact of the cuts last month and this month, which lowered the Bank's base rate from three per cent to a record-breaking 1.5 per cent.
Ray Boulger, senior technical manager at brokers John Charcol, said: "These figures are even more historic than usual because the falls have been so much more dramatic than before. Bear in mind they will be even lower when the figures for February come out."
The best tracker rate for new borrowers is currently offered by First Direct at 3.89 per cent, but most are slightly above four per cent.
Most City commentators expect the Bank of England to cut rates again in the spring possibly to as low as 0.5 per cent.
The figures also show that despite the sharp falls in mortgage rates, banks and building societies have been boosting their profit margins over recent months.
Although tracker rates fell by almost a full percentage point on average in November, the Bank of England's base rate was cut by 1.5 per cent.
Most new tracker deals are priced at about 2.5 per cent over the base rate compared with as low as 1.01 per cent below the base rate two years ago.
Fees for arranging fixed and tracker mortgages have also increased dramatically.
Reader views (5)
Whats the point in throwing a large deposit into a mortgage just to benefit from low interest loan on an asset that is completely overvalued, unaffordable and likely to depreciate a further 20% or so before the first 3 years of the mortgage term has expired? What you are left is a mortgage on a property which cost much more than the property will ever be worth having poured your money down the drain, just to "get on the ladder". Better to rent, who cares if you dont own your property , no one really does anyway, as this catastrophe is proving
- Patrick, Singapore, 13/01/2009 03:02
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It's not the Government that is being clueless it is people thinking that they can still get mortgages without a big deposit.
The banks aren't going to give a 100% mortgage in a falling market. That would be throwing away money and they have thrown away more than enough already.
If house prices are predicted to fall another 15%, no bank will lend more than 85% of the current value of the property.
Buying in today's market has to be seen as a long term investment as with falling prices, most people will see the value of their investment fall over the next year or so.
- Andrew W1, London, 12/01/2009 19:37
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Crash Gordon failure - spent billions on bank shares and cannot get anything right!
- Pat, London, N1, 12/01/2009 16:54
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The larger the deposit the lower the risk therefore the better the deal, that's the way it's supposed to work.
- Stan Ex-London, USA, 12/01/2009 15:46
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How is anyone surposed to save for the large deposit needed when rents are so high.
Here in Barnet a 2 bed small house will cost between £1000.00 and £1100.00 then the council tax £165.00
with a family of two kids would someone tell me how you save the large deposit.
This goverment is clueless
- Paul Billinge, High Barnet, 12/01/2009 15:41
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