Insights from the UK and beyond
Low-rate party comes to an end
First Direct has pulled the shutters down on new mortgage business. Albeit a temporary move, it is yet more unsettling news for scores of homeowners coming to the end of cheap deals. Such a move is unprecedented, but perhaps comes as little surprise, given that the lender has been market-leading for quite some time. With pricing more or less 0.5 percent below that of its nearest competitor, the influx of new business that has created a huge backlog is understandable.
The mortgage market is moving at an alarming pace: First Direct’s decision to suspend new borrowing and push business to its parent company, HSBC, is yet another example of lenders taking action to manage volumes. Others have used other means of stemming inflows — increasing rates, withdrawing products and restricting their best rates to lower loan-to-value customers, as the fallout from the credit crunch continues.
Borrowers, particularly those nearing the end of offer periods, are unnerved. Three-quarters of homeowners face significant jumps in mortgage repayments when their fixed-rate deals expire, personal finance Web site Fool.co.uk says, with a typical increase in interest from 4.8 percent to 6.3 percent. Homeowners on discounted, tracker and capped-rate mortgages could face significant hikes too. On a typical 25-year repayment mortgage of 200,000 pounds fixed at 4.8 percent, monthly repayments are 1,146 pounds. But every one percent rise in rates increases these repayments by around 120 pounds. The low-rate party, it seems, is finally over, and borrowers — both new and old — could be forgiven for feeling the rug is being pulled from under their feet.
All, however, is not lost: there are still some attractive rates around, largely from building societies and smaller players. Cumberland Building Society has a 5.28 percent rate fixed until March 1 2010; Derbyshire Building Society charges 5.29 percent until July 31 2010; and Cheshire Building Society has a three-year fix at 5.49 percent. Indeed, building societies have proved the most competitive so far this year, according to online mortgage company mform.co.uk. It ranks best-buy products based on the true cost of a mortgage, including fees. Each time a lender appeared in the top 10 in the three months to March 31 they were awarded a point and, at the end of the period, the most points signify those lenders consistently offering good value.
Yorkshire Building Society was the most competitive mortgage lender during the first three months of 2008, with 24 points, followed by Furness Building Society in second place with 18 points, and the Chorley and West Bromwich building societies in joint third with 13. The big players — Halifax and Nationwide — scored just six and four points respectively, while Cheltenham and Gloucester achieved just two.
But with lenders pulling tranches of deals and changing their offerings on a near-daily basis, nothing remains the same for long. The message is clear: people looking for a new mortgage should shop around early to wade through the quagmire that is today’s mortgage market.