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| Long-term mortgage rates fall to record lows | Long-term mortgage rates fall to record lows |
| (35 minutes later) | |
| Interest rates on some new mortgages fixed for five years have fallen to the lowest levels on record. | Interest rates on some new mortgages fixed for five years have fallen to the lowest levels on record. |
| There are currently 16 lenders offering mortgage loans at less than 3%, if borrowers can put down large deposits. | There are currently 16 lenders offering mortgage loans at less than 3%, if borrowers can put down large deposits. |
| HSBC's internet lender First Direct has launched a new deal with an interest rate of just 2.69%, if a borrower can put down a 35% deposit. | HSBC's internet lender First Direct has launched a new deal with an interest rate of just 2.69%, if a borrower can put down a 35% deposit. |
| Earlier this week the Post Office launched a similar deal, at 2.74% for those with a 40% down payment. | Earlier this week the Post Office launched a similar deal, at 2.74% for those with a 40% down payment. |
| Rates below 3% were first launched last summer, typically at either 2.95% or 2.99%. | Rates below 3% were first launched last summer, typically at either 2.95% or 2.99%. |
| Even cheaper deals have now emerged, thanks to the Bank of England's Funding for Lending Scheme (FLS), which was launched last August. | Even cheaper deals have now emerged, thanks to the Bank of England's Funding for Lending Scheme (FLS), which was launched last August. |
| This is offering up to £60bn of cheap funds to banks and building societies, if they then lend the money to individuals and businesses. | This is offering up to £60bn of cheap funds to banks and building societies, if they then lend the money to individuals and businesses. |
| Ray Boulger, of mortgage brokers John Charcoal, said that FLS was definitely driving greater competition among lenders. | Ray Boulger, of mortgage brokers John Charcoal, said that FLS was definitely driving greater competition among lenders. |
| "The number of very cheap deals has been rising for the last few weeks," he said. | "The number of very cheap deals has been rising for the last few weeks," he said. |
| "We have also seen lenders cutting rates for people with just 20% or even 15% deposits." | "We have also seen lenders cutting rates for people with just 20% or even 15% deposits." |
| Best buys? | Best buys? |
| With CPI inflation currently at 2.7%, these ultra-cheap mortgages involve no real interest cost. | |
| This opens an intriguing possibility for home owners with a lot of equity in their properties. | |
| Why not borrow more cash with one of these deals and just spend it on day-to-day living? | |
| It would be much cheaper than a bank loan and vastly cheaper than using a credit card. | |
| Of course, loading up with unnecessary debt would not be smart. | |
| Defaulting might endanger the ownership of your home. | |
| Lenders might turn you down if you said the cash would be spent on a world cruise. | |
| But if you can afford to repay, why not? | |
| FLS is having a number of unexpected knock-on effects. | |
| The re-emergence of mortgage equity withdrawal - using your home as a source of cash - may be one of them. | |
| The average five-year mortgage deal has come down in cost substantially in the past two years. | The average five-year mortgage deal has come down in cost substantially in the past two years. |
| Recent statistics from the Bank of England showed that in December 2012 the average interest rate being offered on a five-year deal was 3.89%. | |
| That compared to an average rate of 5.15% two years ago, in February 2011. | |
| Aaron Strutt of mortgage brokers Trinity Financial said: "The lenders have been battling to top the best buy tables for a quite some time, but they seem to be stepping up the fight." | Aaron Strutt of mortgage brokers Trinity Financial said: "The lenders have been battling to top the best buy tables for a quite some time, but they seem to be stepping up the fight." |
| "There are five or six lenders offering sub-2% rates and they offer great value for money, although it is important to choose a best buy mortgage carefully as some of the arrangement fees are rather high and there may be a large early repayment charge." | "There are five or six lenders offering sub-2% rates and they offer great value for money, although it is important to choose a best buy mortgage carefully as some of the arrangement fees are rather high and there may be a large early repayment charge." |
| As an example, the Chelsea, now part of the Yorkshire building society, is currently offering to lend money at just 1.89% for two years. | |
| That is available for someone with a 40% deposit and also able to pay a £1,695 fee. | |
| Stringent requirements | Stringent requirements |
| Some of the new low rates are marketing gimmicks, designed to push lenders' names to the top of the best-buy tables on price comparison websites. | Some of the new low rates are marketing gimmicks, designed to push lenders' names to the top of the best-buy tables on price comparison websites. |
| As the new cheap deals come with hefty arrangement fees which have to be factored into the overall cost, they may not necessarily provide the best deal. | As the new cheap deals come with hefty arrangement fees which have to be factored into the overall cost, they may not necessarily provide the best deal. |
| Despite the Bank of England supplying cheap money for lenders, there is little evidence so far that they are relaxing their stringent lending requirements. | Despite the Bank of England supplying cheap money for lenders, there is little evidence so far that they are relaxing their stringent lending requirements. |
| This means that in practice most of the funds are still being channelled to those deemed to be the least risky borrowers; people with large deposits and good credit ratings. | This means that in practice most of the funds are still being channelled to those deemed to be the least risky borrowers; people with large deposits and good credit ratings. |
| Ray Boulger suggested this cautious stance may change soon. | Ray Boulger suggested this cautious stance may change soon. |
| "Most lenders have said they plan to raise their lending this year, some by quite a lot," he said. | "Most lenders have said they plan to raise their lending this year, some by quite a lot," he said. |
| Andrew Montlake of mortgage brokers Coreco said: "As competition among lenders intensifies, they will start moving up the risk scale, and we will see more 85%, 90% and even some 95% deals coming out." | Andrew Montlake of mortgage brokers Coreco said: "As competition among lenders intensifies, they will start moving up the risk scale, and we will see more 85%, 90% and even some 95% deals coming out." |
| "For first time buyers, it is a matter of waiting and then there will be more choice for them." | "For first time buyers, it is a matter of waiting and then there will be more choice for them." |