Mortgage News

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.

"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.

The landscape of buy-to-let has changed dramatically in recent years, with various Government interventions arguably making it more difficult for landlords to make a profit – and causing some to look at other ways of operating (as we'll discuss more below). Yet those seeking real returns from their property portfolios may still be able to find them, but for many, it all comes down to one important factor – location.

That's according to the latest Landbay Rental Index, which revealed that although the average rent for a UK property grew by 0.96% in the year to April, far better rental growth could be achieved in certain locations, particularly by looking beyond the former hotspot of London and going north instead.

Nearly half of first-time buyers would consider taking out a 40-year mortgage to get onto the property ladder, according to research from Santander Mortgages.

This could prove a successful strategy, as the bank also found that choosing a 40-year mortgage over a 25-year term could help 3.25 million more first-time buyers get onto the property ladder as it would make monthly repayments more affordable. Indeed, the analysis revealed that the cost of an average monthly repayment for a 25-year mortgage falls by £263 when spread over a 40-year period, and not only that, but buyers could save £178,500 – or 77% of the average UK house price – by buying a property rather than renting over 40 years.

"The possibility of owning a property may seem like a distant dream to some aspiring buyers, many of whom have found themselves locked in a 'rent trap' and unable to get onto the property ladder," said Miguel Sard, managing director of Mortgages at Santander UK. "By offering buyers the option of a longer-term mortgage, our aim is to address some of the affordability restrictions they face and support them in buying a home with more manageable monthly repayments."

40-year mortgage increase

The good news for first-time buyers is that the number of 40-year mortgages available has increased significantly over the last five years. Last month Moneyfacts.co.uk reported that 50.89% of all residential mortgage products have a standard maximum mortgage term of up to 40 years, up from 35.93% five years ago.

"Historically a standard mortgage term generally amounted to a period of 25 years, but most products are now available to be extended for a period of 40 years," said Darren Cook, finance expert at Moneyfacts.co.uk. "By extending their mortgage term, borrowers may be looking to reduce their monthly repayments and therefore are more likely to meet strict affordability requirements."

It is important to remember that although 40-year mortgages reduce monthly repayments, it does mean borrowers will have to wait longer to pay off the mortgage, which could mean some borrowers are making repayments into retirement. Therefore, those considering a 40-year mortgage should think about if they will still be able to continue making repayments towards the end of the mortgage, or may want to consider overpaying when their financial situation improves to help shorten the mortgage term. Another option could be choosing a shorter term when they remortgage; hopefully, they'd have built up some equity and could potentially move to a lower loan-to-value bracket, which means their repayments may not have to rise excessively, if at all.

Happily, these are options many borrowers are already considering. The Santander data went on to reveal that 23% of respondents would remortgage to a shorter term if their finances improved and 37% would overpay whenever they could, and another 18% would shorten the term when they moved house. Any one of these could help ensure affordability for the long term, but it's important to remember that finding the best mortgage rate can be just as important – use our mortgage search tool to get started, and see how low your repayments could be.

It can be difficult for first-time buyers to take that initial step on the ladder, but happily, they could now find it easier to secure a low-cost mortgage to suit, with the latest research from Moneyfacts.co.uk revealing that the number of providers offering mortgages to those with a 5% deposit has risen substantially in recent years, and rates have plummeted as a result.

Boost for first-time buyers

The data shows that 60 providers now offer residential mortgage products at up to 95% loan-to-value (LTV), up from 53 a year ago and a sharp rise from just three in April 2009, when providers turned away from this sector in the aftermath of the financial crisis. The number of 95% LTV products available has risen just as dramatically over the same period, and in turn, this boost in competition has forced rates downwards.

As the table below highlights, the average two and five-year fixed mortgage rates at 95% LTV have fallen by 0.73% and 0.71% respectively in just 12 months to stand at 3.28% and 3.73%, both of which are record lows, which means first-time buyers have never had it better if they want to take that first step.

Maximum 95% loan-to-value residential mortgages

Source: Moneyfacts.co.uk

"A decade ago, borrowers who could only raise a 5% deposit had just three products from three mortgage providers to choose from," said Darren Cook, finance expert at Moneyfacts.co.uk. "Today, a borrower can choose between 405 products available from a total of 60 providers. As more firms become willing to lend at this higher-risk tier, it means that potential homeowners have a greater choice of products, incentives and service, which can only be good news for borrowers."

Mortgage certainty

The fact that 83% of mortgages at this level (338 of the 405 currently available) are fixed rate deals is particularly notable, but it also isn't that surprising; Darren explains that these deals "enable borrowers to have the certainty of knowing their monthly repayment amount, which is perhaps of particular importance to those taking their first steps on the property ladder.

"There clearly seems to be a positive drive by mortgage providers to try and secure the business of potential first-time buyers, the lifeblood of the mortgage market, and it is encouraging to see rates decrease because of this healthy competition."

The fact that rates have fallen to record lows will come as particularly welcome news to those now searching for their first home, and means now could be a great time to take the plunge. Of course, first-time buyers will still need to jump through several affordability hoops to prove they can afford their preferred mortgage, but with average rates lower, things should hopefully be slightly easier. Start the process by comparing the best first-time buyer mortgages available and see if you can make it onto the first rung of the ladder.