IS the message from the Bank of
England - that the housing market
can only be rescued with
lower rates for borrowers - at last
getting through to big lenders?
When Nationwide BS started
flagging a round of cuts on fixedrate
loans over two and five
years, Britain's biggest building
society indicated that big lenders
might start to follow the Bank
base rate downwards.
This came after several
months in which the two moved
in opposite directions.
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With savers' money gushing
into building societies, some
might feel this move was long
overdue.
Actually, it is a dip in swap
rates on funds raised on money
markets, which enables Nationwide
to offer two-year fixes from
5.95 per cent for buyers, and from
6.15 per cent for remortgagers,
both with a £599 fee and maximum
loan to value (LTV) ratio of
90 per cent.
On three-year fixes, Nationwide
might allow an LTV of 95
per cent.
Nationwide's move, hard on
the heels of smaller falls on fixes
at Abbey and Royal Bank of Scotland
(RBS), is "a meaningful reduction",
says Ray Boulger, of
leading broker Charcol.
Fixed-rate loans are far more
popular with borrowers than
tracker rate loans: Charcol figures
show that 78 per cent of
mortgages it arranged in April
were fixes - "mainly because
fixed rates were a quarter to half
a per cent cheaper than trackers,
which mostly start above six per
cent".
Hamptons Mortgages, a rival
broker, confirms that fixed-rate
mortgages have nearly doubled
their share of loans arranged
since January.
Boulger said: "Soaring demand
for fixed-rate loans might imply
borrowers are nervous about the
strength of the economy and fear
rates will soar as they did in the
early Nineties. But such a hike is
unlikely."
Another ray of hope is HSBC's
decision to extend its Rate
Matcher mortgage for a further
six weeks until June 29.
This is available to all UK
homeowners whose fixed rate
mortgages mature before August
31. With a maximum LTV of 80
per cent, Rate Matcher enables
any borrower at the end of a fix
to refix at the same figure for a
further two years.
In theory, the re-fix could be as
cheap as 4.54 per cent - although
any borrower taking the maximum
£250,000 from Rate Matcher
at that rate pays a fee of £4,599.
HSBC, which has written more
than £100m of mortgage business
each working day since launching
Rate Matcher on April 14,
says two-thirds of its customers
pay a fee of less than £1,000.
Any reduction in rates is helpful,
but Boulger says "We are
only now nearing the end of the
beginning of the crisis caused to
housing markets by the credit
crunch.
"There were 25 lenders offering
100 per cent loans in January, and
now there are only two - Bank of
Ireland and Bristol and West,
which require a parent or grandparent
named on the mortgage
deed in an enhanced guarantor
scheme.
"There is still strong demand
for 95 per cent loans, but buyers
at that level must pay a much
higher price.
"Typically, the premium for
borrowing 95 per cent of price as
opposed to 75 per cent now runs
at one per cent, against an average
0.4 per cent before the credit
crunch, and borrowers taking 95
per cent loans can expect to have
a higher lending charge (about
1.5 per cent of mortgage advance)
added to their mortgage at the
start."
Charcol figures show that a
borrower with a £150,000 mortgage
and a ten per cent deposit
pays £93 more in interest each
month than a borrower with the
same mortgage who put down a
25 per cent deposit.
Andrew Haggar, at Moneyfacts,
said the drastic fall in the
supply of 95 per cent loans - from
about 900 providers a year ago to
barely 200 today - has caused the
market to grind to a halt.
"Lenders still want to carry on
mortgage business, but they are
far more selective on LTV limits
and credit scoring," he says.
"Eventually, one lender will decide
to lend more bullishly, and
others will follow, but all lenders
are waiting for somebody to
make that first move."
Nobody knows exactly where
the market is heading. As the
notes of Housing Minister Caroline
Flint revealed last week: "We
can't know how bad it will get."
Boulger said recovery is at
least a year away.
"First-time buyers will be
largely absent from the market
for two years, from June last year
to mid-next year, at which point
the market could begin to stabilise
and values cease to decline.
Boulger urged first-time buyers
to monitor the market in the
hope of finding a distressed seller
ready to accept perhaps ten to
15 per cent below what a property
is worth.
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