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Mortgage product choice climbs back toward pre-pandemic levels

Mortgage options for borrowers increased for the seventh consecutive month with the 95% loan-to-value (LTV) market receiving a healthy injection of deals, Moneyfacts.co.uk has revealed.

It said there were now 78 more deals for borrowers with a 5% deposit but the 90% LTV sector also experienced a boost with 41 more products being added to the mix.

The only tier where availability reduced was at 80% LTV, Moneyfacts revealed. It said this could be due to providers shifting focus and increasing the number of products launched in the higher LTV tiers.

Some rates also started looking more favourable, with Moneyfacts’ data revealing, after nine months of increases, the average overall two-year fixed rate reduced by 0.01% to 2.57%.

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However, the equivalent five-year fixed rate for all LTVs increased by 0.02% – a fifth consecutive monthly rise – to 2.79%. Moneyfacts attributed this to the steep rise in the number of traditionally higher-rated, higher LTV products now available.

What’s more, the average shelf-life of a mortgage deal increased by three days to 32, indicating that things may be calming down in the volatile residential sector, with borrowers now having a little longer to secure their chosen product.

Eleanor Williams, finance expert at Moneyfacts, said: “The sense of optimism in the mortgage sector continues, with product choice continuing its climb back towards pre-pandemic levels. After seven months of consecutive increases and 3,927 products now on offer, this represents a 53% rise year-on-year and is the highest this total has been since March 2020 (5,222).

“This positive growth compliments recent Bank of England figures, which show a boom in mortgage borrowing to levels not seen since prior to the financial crash.”

Read about the UK Housing Market via our Specialist Residential & Buy to Let Division

She added: “Higher LTV products returning and rates reducing couldn’t come at a better time as house prices continue to rocket upwards, but housing supply remains an obstacle for would-be buyers and this shortfall may well continue to drive up house prices.

“Lenders have been vocal of their confidence in the mortgage market as the UK lockdown eases, which is refreshing to see after the turmoil the pandemic created for home movers and those looking to switch their deal for all walks of life.”

Mortgage market analysis (Source: Moneyfacts Treasury Reports)
 May-20Apr-21May-21
Fixed and variable rate productsTotal product count – all LTVs2,5663,8423,927
Product count – 95% LTV4134112
Product count – 90% LTV100440481
Product count – 85% LTV208616625
Product count – 80% LTV430721710
Product count – 75% LTV554766769
Product count – 60% LTV522515527
All LTVsAverage two-year fixed rate2.09%2.58%2.57%
Average five-year fixed rate2.35%2.77%2.79%
All productsShelf life (days)342932
All productsFees (excluding no-fee deals)£985£1,053£1,051
Data shown is as at the first available day of the month, unless stated otherwise.
Source: Moneyfacts Treasury Reports

Source: Mortgage Finance Gazette

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Mortgage options hit highest level since first national lockdown

With lenders continuing to gain confidence, homebuyers and investors seeking mortgages now have the highest level of mortgage options available since March 2020.

Lenders recently launched a range of new mortgage options for property buyers. Currently, there are 3,215 mortgage deals available, according to Moneyfacts. This is the highest number in 11 months, when there was 5,222 deals available on the market.

In the first half of 2020, mortgage options fell sharply. Many lenders withdrew mortgages while they reassessed the level of risk they could take in the wake of the COVID-19 pandemic. In particular, borrowers with smaller deposits had few mortgage deals available.

During the second half of 2020, the mortgage market started recovering. Since October, the number of mortgage options has grown by 42%. This is the biggest four-monthly increase since 2007 .

Additionally, at the end of 2020, mortgage approvals were at the highest level since 2007. The housing market remained busy as homebuyers and property investors have been rushing to beat the stamp duty holiday deadline.

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Mortgages with smaller deposits available

Choice in mortgages is particularly increasing for borrowers with smaller deposits. In the past few months, the most significant rise was for 90% loan-to-value (LTV) mortgages. This LTV mortgage where borrowers only need to put down a 10% deposit is typically used by more first-time buyers.

Eleanor Williams from Moneyfacts says: “Those with 10% deposit or equity might be especially pleased to note that this tier has, for a second month, seen the largest uplift in availability.

“With products at this level often favoured by first-time buyers and traditionally being seen as higher risk for providers, willingness to extend lending in this risk bracket could be an indication that lenders have confidence in the sector, despite ongoing, wider economic uncertainty. This is echoed by the average two and five year fixed rates at 90% LTV seeing the largest fall of all the lending tiers, reducing by 0.09% and 0.07%.”

Mortgage interest rates stabilising

Average interest rates have increased across all LTVs. However, the average rate has increased only fractionally, which shows rates are stabilising. This is likely due to increased competition in the mortgage market. It also shows lenders are gaining more confidence and less risk averse than before.

Eleanor Williams comments: “At 2.53%, the two year fixed overall average rate is now 0.11% higher year-on-year, while the five-year equivalent at 2.73% is equal to where it sat in February 2020.

“Therefore, while these rates have risen again, the increases are of just 0.01% and 0.02% this month, which may be a sign of the start of some stability in the market, especially when compared to the drastic monthly increases witnessed over the course of last year.”

Read about the UK Housing Market via our Specialist Residential & Buy to Let Division

Choosing the best deals

Moneyfacts advises borrowers to take into account a number of factors when choosing a mortgage deal. Don’t look at just the interest rate. It’s important to also take product fees and incentives into consideration.

Recently, two-year fixed products have been particularly popular. Two-year fixed deals typically have lower interest rates than five-year fixed deals. However, for some, the five-year option could be a better choice in the long run. And the interest rate gap between two and five-year fixed rates mortgages has dropped to its lowest level since 2013, according to Moneyfacts.

As the economy and mortgage market remains uncertain, five-year fixed deals could provide longer-term stability. However, this depends on the borrower’s needs. Seek independent financial guidance to find the best mortgage deal for your circumstances.

By Kaylene Isherwood

Source: Buy Association

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