What's the state of the mortgage market?

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By Paul Davies
Know Your Money Editor

Following the recent economic turbulence and the slight improvements that have started to show, some people may be considering stepping onto the property ladder.

However, there are a range of options that may be worth considering and those looking to get a mortgage might wish to take a look at the current state of the market.

What's the outlook?

David Whittaker, managing director at Mortgages for Business, said: "It was a tricky time a year ago; it is not a tricky time now. The market has turned and there is more money available for those of reasonable credit and reasonable organisation.

"Essentially, we are back where we were four and a half or five years ago and the market was absolutely fine. It is just that we have to had to shed the products that were, with the benefit of hindsight, too racy."

LSL Property Services recently reported that 28 per cent of landlords plan to expand their portfolios in the next 12 months, while 48 per cent of property investors believe the current buy-to-let market is attractive for investment.

It also revealed that 61 per cent of property landlords surveyed had found it more difficult to access a mortgage than three years ago - with 28 per cent stating it was much harder.

At the other end of the scale one in ten of all respondents had purchased properties with cash in the past year.

Mortgage approvals have risen

Mortgage loan approvals in March this year were 20 per cent higher than the same month the previous year, the British Bankers' Association (BBA) recently reported.

The BBA said its members had seen a five per cent increase in the number of loan approvals for house purchases during the month, due in part to the effects of the stamp duty change at the end of last year.

This saw the tax reintroduced on properties costing between £125,000 and £175,000.

A total of 34,905 homebuyer loans were approved in the month.

What is best for those with tight finances?

Finding the right mortgage can prove difficult for first-time-buyers or those on a tight budget.

Melanie Bien at mortgage broker Savills Private Finance, told the Guardian: "The best rate for someone with a modest deposit - 10 per cent - is 6.69 per cent from Yorkshire Bank, so those who can least afford it will end up paying the highest rates."

She suggests that a five-year fix may make more sense than a two-year deal for people who need the certainty of a fixed rate because they are on a tight budget, or prefer to know exactly how much their mortgage is going to cost each month.

"While two-year fixes are cheaper, there is a strong possibility interest rates will be rising in two years, which means you will need to remortgage when rates are higher, so it is going to be more expensive," she added.

What is best for those with a little more?

However, if your finances are not so tight a base rate tracker may still be the best option - particularly one allowing you to switch to a fixed-rate when rates start to move upwards.

What's the advantage of fixed deals?

Five-year fixed deals have seen rates edge down in recent times and are now starting at 4.49 per cent.

This is an improvement on two years ago when the best deals were 5.5 per cent or more. However, in 2003 deals were available for as little as 3.75 per cent.

With the chance of a hung parliament and the potential for hikes interest rate hikes if inflation continues to rise, experts say it's an option well worth considering for people who are on a tight budget and looking for a mortgage now.

Ray Boulger at mortgage broker John Charcol, suggests that no overall majority following the general election could result in turmoil for the financial markets and interest rates may be pushed up.

"That sort of uncertainty creates an extra reason for thinking of buying a five-year fix," he said.

To compare the latest mortgage rates from leading UK lenders click here.

Important Notice
This guide is intended for general information only and is not intended as, and does not constitute, any form of advice, recommendation or endorsement by us of any particular product(s) or services and you should rely on your own further research and professional advice in relation to your specific requirements and circumstances before purchasing any products or services. Use of this guide is subject to the Terms of Use of the KnowYourMoney site.