Mortgage rates start to rise as number of deals cut by over half

In just five months, the number of mortgage deals available to consumers has more than halved, falling from 5,222 on 1 March to just 2,526.

As well as this, data due to be released in the Moneyfacts UK Mortgage Trends Treasury Report shows that in the four weeks between 1 July and 1 August, 202 mortgage deals disappeared from the market. This is despite the housing market picking up after the spring lockdown and being boosted by the Government’s rise of the stamp duty threshold.

“The introduction of the stamp duty holiday and record low average rates following an enforced period of shutdown for the market has seen demand for mortgages escalate in recent weeks,” Eleanor Williams, finance expert at Moneyfactscompare.co.uk, explained. “However, product choice and availability remains a key issue for mortgage borrowers, with this month continuing the downward trajectory we saw between June and July; there were 2,526 live products as of the 1 August, a fall of 202 compared to last month, and 2,696 less than the number of products on offer at the start of March, meaning there is 48% less choice available to consumers as the industry continues to feel the impact of the Coronavirus pandemic.”

First-time buyers have been particularly hard-hit by the fall in products, as last month we reported that between 1 June and 1 July, the number of deals available to those with a 10% deposit (90% loan-to-value) had fallen from 183 to 70. Meanwhile, the number of deals for those with a 5% deposit (95% LTV) had fallen from 31 to 14 during this same period.
First-time buyers have not only seen their choice in deals fall since March, but also the average rates on 90% LTVs have been rising.

On 1 March, the average rate on a two year fixed deal at 90% LTV was 2.57%, and this had risen to 2.90% on 1 July and increased again to 3.07% on the 1 August. This would mean someone purchasing a £200,000 property with a 10% deposit on a 25-year mortgage at the average rate would have seen their monthly repayments increase by £46.28 between March and August. Over the two year mortgage term, this would be an extra £1,110.72 in repayments.

Fortunately, there are still some attractive two year fixed first-time buyer rates available in the charts at the moment. For example, the lowest two year fixed rate on a 90% LTV is being offered by HSBC, with its 2.44% (3.5% APRC) deal. A £200,000 property bought with a 10% deposit on a 25-year term mortgage at 2.44% would result in monthly repayments of £802.08. This is £58.07 cheaper than the repayments at the current average rate of 3.07%.

Those looking for an 80%, 70% or 60% LTV will have found that despite average rates falling between March and July, over the past month rates have started to rise.

For example, the average two year fixed rate deal at 80% was 2.41% on 1 March. This had fallen to 2.13% on the 1 July, but on the 1 August, it had increased to 2.22%. Similarly, the average five year fixed rate at 80% LTV stood at 2.71% in March, falling to 2.38% on 1 July but rising to 2.47% on 1 August.

Those looking for a deal at 70% LTV will also have seen average rates increasing in the last month, despite a fall between March and July. On the 1 March, the average two year deal rate at 70% LTV was 2.51%, falling to 2.12 on 1 July, then rising to 2.20% on 1 August. The average five year fixed rate stood at 2.89% on 1 March, which then dropped to 2.40% on 1 July, but had increased to 2.48% on 1 August.

The only change to this pattern can be seen with the average five year fixed rate at 60% LTV. On the 1 March, the average rate stood at 2.12%. This fell to 1.98% on 1 July and remained at 1.98% on 1 August. However, the average rate on a two year deal at 60% LTV has increased in the last month. On the 1 March, it stood at 1.80%, falling to 1.69% on 1 July then increased to 1.71% on 1 August.

Although mortgage rates at lower LTVs have only started to rise, lenders are becoming more cautious during this period of economic uncertainty and, as a result, it could see rates rising further. Saying this, mortgage rates at lower LTVs are still competitively low and borrowers should consider a range of factors when deciding a deal, such the product fee and incentive, which creates the ‘true cost’ of the deal. As Williams explained: “For borrowers, assessing the “true cost” of a new deal is essential, particularly at this time when many have concerns about their household income.”