Competition in the mortgage market is as strong as ever, and our latest figures show that the average two-year fixed mortgage rate has fallen yet again! It's now hit a fresh low of 2.56% after dropping by a whopping 0.11% from November, and is easily the lowest figure we've ever recorded. However, as positive as it sounds, all may not be as it seems, as analysis suggests that the market has been skewed by the actions of a single provider.
It was announced last month that GE Money Home Lending had ceased lending as a result of the sale of its UK mortgage book, which effectively means that its mortgage products have been withdrawn from sale. This has not only driven a stark drop in product numbers – the number of residential products available has fallen from 4,033 to 3,634 in the last month, a reduction of almost 10% (399) – but has also fuelled the significant drop in average rate.
GE Money targeted its lending to borrowers with instances of adverse credit, such as having a CCJ on their file, and who would therefore find it difficult to secure a mortgage from a mainstream lender. Given the higher level of risk involved in this kind of "near-prime" lending, the products had higher rates, and the withdrawal of hundreds of these high-rate products understandably impacted the market. It had the inevitable effect of reducing the overall average, which essentially means that this month's figures have been skewed by the actions of a single provider.
It's worth noting that this hasn't affected availability, or indeed rates, for the majority of mainstream borrowers. Given that GE Money's products were targeted to the near-prime sector of the market, it's only these borrowers who will notice the drop in availability – for everyone else, it's business as usual, with product numbers and rates noting far less movement elsewhere in the market.
For example, it's only certain loan-to-value (LTV) tiers that have been significantly impacted (namely the 75% and 80% LTV tiers, which saw a considerable drop in both product numbers and rate), as it's only in these core sectors where GE Money operated. Similarly, rates in the five-year and variable sectors haven't noticed such considerable movement, again because GE Money wasn't involved in lending in these areas.
The five-year fixed rate, for example, fell by a more moderate 0.02% (which still means it's hit a new record low of 3.27%) while the average tracker mortgage rate actually rose by 0.01% to stand at 1.99%, so it's highly likely that, were it not for GE Money, two-year rates would have also remained on a more stable path.
However, even though the majority of borrowers won't notice any difference in terms of availability or rates, there's always a downside, and unfortunately, the withdrawal of GE Money could potentially create more mortgage prisoners. There'll now be a distinct lack of products available to those with slightly blemished credit histories, as GE Money was one of the very few lenders who would offer mortgages to this group of borrowers. So, while those with clear credit histories will be unaffected, those who already have a GE Money mortgage may find it difficult to find alternatives.
This highlights the importance of making sure you're in the best possible position to get a mortgage, and if you're thinking of applying for one in the next few months, you'll want to do everything you can to boost your chances of securing a decent rate. The most important thing you can do is go through your finances thoroughly, making sure you truly can afford the repayments – you may need to make cutbacks on unnecessary expenditure – as lenders will expect to see proof of your suitability.
And, if your credit score is less than perfect and you think you may have difficulty securing a mortgage in the future, it's time to take action. Start the process by heading to a credit check provider, such as Experian Credit Expert, to determine your current rating and see where improvements can be made, and from there you'll want to do everything you can to boost your score (check out these tips for some ideas of where to start).
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Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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