Top Mortgage News

Derin Clark

Derin Clark

Online Reporter
Published: 22/05/2019

Nationwide Building Society has suggested that intense mortgage competition and increased spending on digital banking services have led to its profits falling by 19% to £788m for the year to 4 April.

The building society saw a drop in profits despite its net mortgage lending rising to £8.6bn from £5.8bn the previous year. Intense competition has likely led to the fall in mortgage rates year-on-year, which consequently could have affected mortgage lending profits. Along with Nationwide reporting a drop in profits, the competitive mortgage market is one factor that could have contributed to Tesco Bank and the AA leaving the sector altogether.

Tesco Bank has announced that it will not offer any new mortgages and is actively looking for options to sell its existing mortgage portfolio; a decision it has made due to challenging market conditions.

Tesco Bank started offering mortgages in 2012 and currently serves over 23,000 customers with total lending balances of £3.7bn. Moneyfacts.co.uk research has found that it currently offers 77 mortgage products, all of which are fixed-term products spread across 75% - 95% loan-to-value (LTV) tiers.

This decision by Tesco Bank is not good news for consumers as it means that there will be less competition within the market and less choice. Despite this, the fixed rate mortgage market remains highly competitive and there are still some very competitive fixed rate mortgages available for borrowers at a range of LTVs. In addition to this, even with Tesco Bank no longer offering new mortgages, this competition within the fixed-rate mortgage market is expected to continue.

Darren Cook, finance expert at Moneyfacts, said: “It is sad news when a provider decides to leave the mortgage market as this clearly partially reduces customer choice and interest rate competition. First-time buyers may especially miss Tesco Bank’s products as it offered a 95% loan-to-value mortgage, giving those with only a 5% deposit the chance to get onto the property ladder. Rates in the fixed rate mortgage market have reduced significantly over time and it is clear that margins – especially at the lower LTV tiers – are narrow, with little margin to cut them much further.”

Commenting on Tesco Bank’s decision, Gerry Mallon, chief executive of Tesco Bank, said: “In recent years, challenging market conditions have limited profitable growth opportunities. Our focus is on how we best serve Tesco customers and align our resources effectively to their needs while ensuring that our offer remains sustainable in the long term.

“To that end, we have made the strategic decision to focus on serving a broader range of customers in more specific areas, which means moving away from our mortgage offer. We have therefore chosen to cease lending to new customers and announce our intention to explore a sale of our portfolio. Our priority in any sale is to complete a commercially acceptable transaction with a purchaser who will continue to serve our customers well.”

While the interest rate on any mortgage might be the first thing to come to mind when searching for a deal, borrowers should also make time to consider those with an incentive package. Thankfully, the number of deals that offer cashback, a free valuation or free legal fees have risen year-on-year, as mortgage lenders look to entice borrowers with additional perks rather than rates alone.

This week has seen only a little movement in terms of the best mortgage rates available. In the two-year fixed rate mortgage chart, the best rate being offered was still 1.54%, while those wanting to fix their mortgage term for longer could again get top rates of just 1.74% in the three-year fixed rate Best Buy chart or 1.89% in the five-year and over fixed rate best Buy chart. The remortgage chart also remained unchanged yet still highly competitive this week, with a rate of 1.43% (variable) topping the Best Buy chart.

A selection of the best two-year fixed rate mortgages

In the Best Buy two-year fixed rate mortgage chart this week:
Yorkshire Building Society – 1.54%
NatWest – 1.60%
First direct – 1.64%
There was no movement at the top of the fixed rate mortgage Best Buy charts this week, with Yorkshire Building Society remaining at the top of the two-year fixed rate chart offering a rate of 1.54% on a 35% deposit/equity (65% LTV). This rate is fixed until 30 June 2021 and charges a completion fee of £995. It does however come with the incentives of free valuation and £250 cashback, while also allowing underpayments, overpayments and payment holidays.
NatWest remained in second place in this week's Best Buy chart with a rate of 1.60% on 20% deposit/equity (80% LTV) that remains fixed until 31 October 2021. A fee of £995 is required, but this product includes the incentive of £250 cashback and allows overpayments. Meanwhile, first direct continued in third place with a rate of 1.64% that is fixed for two years for those with a 25% deposit/equity (75% LTV). This deal charges a booking fee of £490, which increases depending on the amount borrowed, but does offer the incentive of fees valuation and, for remortgagors, free legal fees, while also allowing overpayments.

A selection of the best three-year fixed rate mortgages

In the Best Buy three-year fixed rate mortgage chart this week:
•HSBC – 1.74%
•Barclays Mortgage – 1.79%
•Yorkshire Building Society – 1.89%
HSBC was again offering the top rate in the three-year Best Buy chart this week with 1.74% on a 25% deposit/equity (75% LTV), which is fixed until 31 July 2022. The product carries a fee of £999, but it includes the incentive of free valuation for all borrowers and free legal fees too for remortgage customers. Barclays Mortgage took second place again this week with a rate of 1.79% on a 25% deposit/equity (75% LTV), which is fixed until 31 July 2022. A fee of £999 is charged, however it includes the incentive of free valuation for properties valued to a maximum of £2m and again, legal fees are free for remortgagors. Both these deals have the flexibility of allowing overpayments too. In third place this week was Yorkshire Building Society offering 1.89% fixed until 30 June 2022 for a 15% deposit/equity (85% LTV). This deal charges a completion fee of £995 but does offer free valuation as an incentive. This product also allows underpayments, overpayments and payment holidays.

A selection of the best five-year fixed rate mortgages

•Santander – 1.89%
•Sainsbury's Bank – 2.01%
•Yorkshire Building Society – 2.10%
As is normal, those wanting to fix their mortgage for a term of five years or more had to compromise with the highest fixed term rates again this week. Santander offered the most competitive rate in this Best Buy chart of 1.89% that is fixed until 2 August 2024. This deal requires a 25% deposit/equity (75% LTV) and charges a fee of £999. It does however include the incentive of free valuation up to £1,190 for all borrowers and free legal fees or £250 cashback for remortgage customers too, as well as permitting overpayments. Sainsbury's Bank was offering a rate of 2.01% that is fixed until 30 June 2024, which put it in second place in the chart this week. This rate requires a 20% deposit/equity (80% LTV) and charges an arrangement fee of £995. However, it includes the incentive of free valuation and allows underpayments, overpayment and payment holidays. Yorkshire Building Society featured strongly in the charts this week and could be found in third place in the long-term fixed rate chart offering a rate of 2.10% for a 15% deposit/equity (85% LTV). This rate is fixed until 30 June 2024 and charges a completion fee of £995. It offers the incentives of free valuations and £500 cashback. Underpayments, overpayments and payment holidays are also allowed.

A selection of the best remortgage deals

In the Best Buy remortgage chart this week:
•NatWest – 1.43%
•Lloyds Bank – 1.63%
•Mansfield Building Society – 2.05%
NatWest remained at top of the Best Buy remortgage chart this week with their 1.43% variable rate offer. This deal requires a 60% LTV and charges a booking fee of £995. It includes an incentive package of free valuation, no legal fees and £250 cashback and allows overpayments. Also offering a remortgage rate below 2.00% this week was Lloyds Bank offering 1.63% fixed rate until 31 August 2021. This rate requires an 80% LTV and charges an arrangement fee of £999. It offers the incentives of free valuations and no legal fees, while also permitting overpayments and payment holidays. Mansfield Building Society was third in the remortgage Best Buy chart this week offering a discount variable rate of 2.05% for three years on an 80% LTV. This deal charges a completion fee of £300 and a booking fee of £199. It does however include the incentives of no legal fees, free valuation and allows overpayments.

Fixed rate mortgages tend to be the product of choice for the majority of borrowers, but the latest Moneyfacts UK Mortgage Trends Treasury Report may cause some to think again, with the figures showing that the average two-year variable tracker mortgage rate has fallen substantially in the last month.

The average now stands at 2.02%, a drop of 0.08% from April (when it stood at 2.10%) and down 0.15% from the rate seen in September last year, a month after the Bank of England base rate increased to 0.75%. Given that tracker mortgages typically "track" base rate, the latest reductions may be particularly surprising given that base rate hasn't changed in the months since.

Further research shows that there are currently 203 variable tracker rate mortgages available, an increase of 18 products from last month (185). Of those currently on offer, 123 products are available to borrowers who require a maximum loan-to-value (LTV) of 75% and below, while the remaining 80 products are available to borrowers who require a mortgage of between 80% LTV and 95% LTV, offering plenty of choice for all sectors of the market.

Two-year variable tracker rate mortgages Sep-18 Apr-19 May-19
Average rate 2.17% 2.10% 2.02%
Products at 75% LTV and below 120 104 123
Products at 80% LTV and above 86 81 80
Total number of product available 206 185 203

"It appears that the increasing number of products this month, and subsequent intensifying competition, has driven the average two-year variable tracker rate down," said Darren Cook, finance expert at Moneyfacts.co.uk. This arguably goes against recent trends, as attention has up until now been more focused on driving rates down in the fixed sector of the market, signalling a potential change of direction among providers.

There are wide variations depending on loan-to-value, too, with it often possible to find rates that are far lower than the average – and they typically beat fixed rates as well. "As expected, the best two-year variable tracker rates can be found at a low-risk tier of 60% LTV, where the average rate currently stands at 1.72%, which is 0.30% below the overall average two-year variable tracker rate of 2.02%," said Darren. "In comparison, the average two-year fixed mortgage rate at 60% LTV is currently 1.90%, which is 0.18% higher than its variable counterpart average.

"Of course, it is to be expected that the average fixed rate will likely be greater than that of the average variable rate, as borrowers pay more for the certainty of monthly payments with a fixed deal. The amount of interest a borrower is required to pay monthly on a variable tracker rate mortgage could of course change over time, but any fluctuations in rate are likely to be linked to external factors such as the Bank of England base rate – and markets are forecasting just a single interest rate increase by 2021."

However, it can't be denied that with current economic conditions so unpredictable, this timescale may shorten, and variable mortgage rates could increase sooner as a result. Therefore, a variable rate of interest may not suit those who are risk-averse – but it all comes down to personal choice. Ultimately, those considering a variable rate tracker mortgage should always factor in any rate rises that could affect whether they can afford the monthly repayments for the length of their term, so as to avoid any nasty surprises later on.

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