Mortgage News & Information - Issue 39, 28 March 2011

Unable to Re-mortgage?

There are many borrowers who would be badly affected by a rise in the Bank of England Base Rate but do not meet lenders' current criteria for re-mortgaging to a fixed rate.

Changes in lenders' criteria, loss of self cert schemes, reduced valuations, changes in personal circumstances, credit problems, or simply being on very low tracker  rates may all be barriers to a re-mortgage for those who want to be protected against rate rises

However, borrowers can now insure against rate rises. The scheme is available for both residential and commercial loans (Including buy to let). Borrowers can protect themselves for up to two years at a time.  The scheme, effectively caps the rate on an existing variable or tracker loan without the need to remortgage.

Unsure Whether to Fix?

You may be one of many borrowers on a low Tracker Rate or Standard Variable Rate and therefore currently enjoying low mortgage payments. However you may also be concerned about the possibility of rate rises and thinking about fixing your rate.  Because the cost of a new fixed rate will be more than you currently pay, you will want to delay the switch for as long as possible, without leaving it too long. A difficult balance.

There is one solution though. One lender will give you a three-month option on its current fixed rates. All you need to do is to obtain an agreement in principle and then pay a £99 booking fee. You will then have the optionof taking the mortgage within the following three-months at the rate booked.

Market News and Comment

Swaps rates have fallen sharply over the last two weeks:

1-year money is down 0.11% at 1.12%
2-year money is down 0.21% at 1.76%
3-year money is down 0.25% at 2.18%
5-year money is down 0.25% at 2.83%  



Swap rates, when referred to in relation to mortgages, are the cost of raising fixed term funding on the money markets.

They reflect the market's expectation of what will happen to interest rates in the future and the most commonly referred to are two, five and ten year swap rates.

Swap rates heavily influence the cost of fixed rate mortgages and can be substantially higher than the Bank of England base rate or Libor (London Inter Bank Offered Rate). Libor does have an effect on swap rates, but swaps are, in the main, driven by the market and what traders expect to happen to rates over a given period of time in the future. Effectively swaps take a longer term view while Libor is a shorter term measure.

3-month Libor has remained at 0.81%

Widespread concern about the impact of the Japanese disaster on global growth has pushed back expectations for the first Bank rate rise. This has reduced swap rates, the money market rates that dictate fixed-rate deals. Five-year swaps have fallen 0.25% over the past fortnight to 2.83%

Homeowners planning to remortgage to the security of a fix may want to wait to see whether rates fall further. Some commentators say there is a strong likelihood five-year fixes will fall below 4% in the wake of the Japanese crisis.

Nationwide introduced the best-buy five-year deal at 4.39% last week with a £900 fee for those with a 30% deposit. This was a reduction on its previous deal of 4.79%.  

The best-buy tracker rate for remortgage is a two-year deal at 1.49 points above Bank rate, so 1.99%, for those with a 35% deposit. The most competitive tracker for house purchases is a lifetime deal at 1.79 points above Bank rate, so 2.29%, requiring a 40% deposit. Both carry a £999 fee.  Follow the link to our Best-buy table for further details.

Borrowers on low standard variable rates (SVRs) of about 2.5% may also be better off waiting for fixed rates to fall further to benefit from lower payments.

The market uncertainty has encouraged many borrowers to opt for two-year fixes.

Lender News

Local authorities to pioneer scheme which will allow first-timers to buy properties with a 5 per cent deposit.

Local authorities are to help first-time buyers to get on the property ladder with a 5 per cent deposit in a new mortgage scheme launched with Lloyds TSB.

Under the scheme, Lloyds TSB will provide a 95 per cent loan-to-value mortgage and the local authority will put forward 20 per cent of the property's value as a security, which will be held on deposit by the lender, but which will also earn interest for the council.

The deal has been brokered by Sector Treasury Services, part of outsourcing company Capita Group, which says that 15 local authorities have signed up to the scheme, although only four have gone public at this stage, and that it is also in talks with other mortgage lenders looking to take part.

Lloyds has not yet revealed the interest rates for the product, but said they would be close to those offered under its Lend a Hand scheme, under which a borrower with a 5 per cent deposit can get a three-year fixed rate mortgage of 5.09 per cent with a £895 fee, in return for a guarantor placing 20 per cent of the property's value on deposit with the lender. This compares with a rate of 5.99 per cent from the bank's mainstream range for a borrower with a 10 per cent deposit. Unlike a shared ownership scheme the borrower would own the property outright.

The scheme is initially being offered through Blackpool City Council, Warrington Borough Council, Northumberland County Council and East Lothian Council. Blackpool and Warrington said they had put aside £5 million each for the scheme, which would help approximately 300 buyers in each area. East Lothian has put aside £1 million and Northumberland could not reveal the sum at this stage.

The Times - 16 March