Securing a mortgage in the current economic climate is not easy. After suffering from a huge amount of defaults on repayments in both the run up to and aftermath of the credit crunch, the banks are being especially cautious about who they lend to.
But plenty is being done to try and stimulate the market and it seems to be having a positive effect: new figures suggest that it is more cost effective to maintain a mortgage now than ever before in history.
The Bank of England’s continued record low base rate of 0.5% and Governments current Funding for Lending scheme are designed to encourage mortgage lenders to keep their interest rates low. Some of the banks remain relatively expensive – in the context of the correlation between their offerings versus the base rate in pre-recession time – but still, according to research by the Halifax, the average monthly mortgage repayment today is £580 per month, on a 70% loan to value, against an average monthly take home income of £2,062. That ratio of 27% is down from 47% in 2007 and is the best in consumers’ favour for a decade, according to analysts.
And there’s some good competition between the providers at the moment, which means there are some excellent deals are beginning to rise as roses amongst the thorns. Choosing between them isn’t always easy though. So here’s an overview of the key players in the market and their current form.
The comparison rates given for each bank are for customers transferring their mortgage into that bank from another provider. Figures are correct as of 25/01/13.
The self-styled ‘World’s Bank’ currently offers one of the very cheapest two year fixed deals out there at the moment, at 1.99%. A 40 per cent deposit is required, and the arrangement fees are at the higher end of the spectrum though.
The bank’s ‘fee free’ offer to its current account customer deals seems to be a steady deal, especially for first time buyers who are able to redeem it on 90% LTVs.
Standard variable rate: 3.94%
Two year fixed: 1.99% - 4.19%
Five year fixed: 2.89% - 4.69%
Tracker: From base rate +2.04%
Compare HSBC's current mortgage rates on Know Your Money here.
Halifax/Bank of Scotland
Halifax is still the biggest mortgage lender in the UK in terms of market share, and has been for quite some time. However as it won’t have escaped you, the bank, along with Bank of Scotland who it had already merged with, is now actually part of the Lloyds Banking Group, along with Lloyds TSB and Cheltenham & Gloucester. There are still some differences in their offerings though.
Halifax’s headline offer at the moment is £1,000 cash back on many of its fixed products. Over a two year term, this could easily outweigh the advantages of potentially lower interest rates that could found elsewhere.
There’s also another £150 cash back available for its Ultimate Reward Current Account holders, those that pay £1,000 per month into any current account, or anyone that switches to a Halifax current account from another bank, all when taking out a new mortgage.
For first time buyers, the bank has just announced it is dropping rates on its products linked to the New Buy scheme by half a per cent.
The bank has a somewhat cryptic message on its website at the moment, announcing that “we'll be changing the way we manage your Halifax mortgage”. Ostensibly, this is because it wants to simplify things and offer customers ease of access and understanding of their own figures. It then spends some 15 further points basically explaining that it will explain more later.
Words to that effect almost always signify increasing levels of self-service and automation. If this is the case, we’ll hold out hope that the efficiency savings lead to lower rates for customers, and don’t simply find their way directly into the executive bonus pot.
Standard variable rate: 3.99%
Two year fixed: 2.34% - 4.39%
Five year fixed: 3.39% – 4.94%
Tracker: From base rate + 2.19%
Compare Halifax's current mortgage rates on Know Your Money here.
The bank says it is focussing its efforts on helping first time buyers at the moment – ‘up to 60,000’ of them in fact. As part of this, it has introduced a ‘Lend a Hand’ product which allows for a 95% loan to value ratio – entailing just a 5% deposit – if a family member acts as guarantor for a further 20%. It is also offering first time buyers £500 cash back on arrangement fees.
For remortgagers, its headline attraction at the moment is a 0.2% discount on interest rates for current account holders.
The company has made around 1,300 of its staff jobless over the last week. As with the example of its bedfellow Halifax, the only good thing that might come out of this might be more competitive rates. Might be...
Standard variable rate: 3.99%
Two year fixed: 2.94% - 5.69%
Five year fixed: 3.44% - 5.69%
Tracker: From base rate + 2.29%
Compare Lloyds TSB's current mortgage rates on Know Your Money here.
‘Loyalty’ appears to have been the word around the Nationwide boardroom when discussions turned to what their unique selling point should be. The bank is making a point of advertising the fact that it offers flexibility as well its best rates to existing customers, as opposed to some of its competitors that concentrate their efforts on stealing clients from one another. That’s not to say that Nationwide isn’t also chancing its arm here too, though: it is offering free legal and valuation fees as a golden handshake to incoming ship jumpers.
Like RBS, Nationwide has discontinued interest-only mortgages altogether for new customers.
Its 4 year fixed deal at 2.79%, with the free legal and valuation and only £900 arrangement fees, looks to be a winner. It’s available across the board, for new and old customers alike and even first time buyers with as little as 5% deposit.
Standard variable rate: 3.99%
Two year fixed: From 2.49%
Five year fixed: From 2.99%
Tracker: From base rate +2.29%
Compare Nationwide's current mortgage rates on Know Your Money here.
Royal Bank of Scotland
As the poster child of bailouts from the public purse, Royal Bank of Scotland – 82% owned by Government – is a complex case to analyse. The bank and others that were rescued by the taxpayer (we’re looking at you Lloyds) are supposedly under pressure by ministers to provide affordable yet sustainable lending in the public interest. One measure it has taken in this regard is to end residential interest-only mortgages, which have been to blame for many house repossessions over the years, where the borrower hasn’t taken adequate measures to pay off their balance at the end of their term. Most of the banks’ peers continue to offer the products, albeit only on higher LTV ratios.
The bank seems to have been making a good fist of recovery since its fiscal imprudence, with its shares rising 77% last year and continuing to grow into 2012. But it has some housework to do in its investment division at the moment, with a potential half billion dollar fine from US regulators hanging over it for indiscretions in Libor setting practices.
This is of course manageable for a bank the size of RBS and shouldn’t lead to higher mortgage rates, but it may keep a low profile while it restructures.
Standard variable rate: 4%
Two year fixed: 2.29% - 5.99%
Five year fixed: 2.95% - 6.29%
Tracker: From base rate +2.09%
Compare RBS's current mortgage rates on Know Your Money here.
The UK arm of Spain’s Grupo Santander took on a huge share of the UK mortgage market when it bought Abbey National in 2004, with the companies now completely merged and the Abbey brand having been phased out.
Santander is reportedly attempting to grow it’s circa 20% market share even more, with bids for Yorkshire and Clydesdale banks said to be under consideration.
Standard variable rate: 4.74%
Two year fixed: 2.24% - 3.94%
Five year fixed: 2.99% - 4.99%
Tracker: From base rate + 2.09%
Compare Santander's current mortgage rates on Know Your Money here.
Barclays bought the Woolwich (formally a building society, latterly a plc) at the turn of the millennium. It now uses the brand to channel its mortgage products through.
Woolwich boasts some of the best tracker rates out there at the moment, at lower arrangement fees than many of its competitors too. Its 1.89% above the base rate, running for a two year term, looks to be very cheap, at an effective current rate of 2.39%. You can actually also get this rate on the bank’s normal two year fixed deal – provided you can meet the 60% LTV.
The bank appears to be attempting to appeal to our nervier sides with a couple of its offers. It is offering a ten year fixed as well as two-year-tracker-then-three-year fix, which would guarantee some immunity from rising Bank of England base rates in the second half of the decade. Those that make their beds here must lay in them though – there are early exits costs of three per cent of the balance of the mortgage, in place until 2018 and 2023 respectively.
Barclays current account holders that pay in more than £800 will also be treated to half price arrangement fees of £449.
Standard variable rate: 3.89%
Two year fixed: 2.39% - 3.99%
Five year fixed: 3.39% - 4.89%
Tracker: From base rate + 1.89%
Compare Woolwich's current mortgage rates on Know Your Money here.
Yorkshire Building Society
One of the biggest of Britain’s constantly decreasing portfolio of building societies, Yorkshire matches the sub 2 per cent offered by HSBC on a two year fixed, and goes one step further in doing it at a much keener price on arrangement fees. It’s only available to new customers, though.
The 1.99% two year fixed will also be offered through Yorkshire’s sister company, Chelsea.
Standard variable rate: 4.99%
Two year fixed:1.99% - 4.04%
Five year fixed: 2.99% -4.64%
Tracker: From base rate +1.94%
Compare Yorkshire Building Society's current mortgage rates on Know Your Money here.
Checking round all of the banks and building societies – which go far beyond the ones mentioned here – to compare their rates is an almost impossible task. Consider using Know Your Money’s personalised whole-of-market comparison tool, linked to independent mortgage brokers who are sometimes able to secure better than advertised rates. Click here for more details.
Author: KYM Editor