UK enters ultra-low mortgage rate era

A mortgage price war is breaking out in the UK with lenders set to be announcing some of the lowest home lending rates ever, possibly as low as 0.5%.

It has already begun with the smaller lenders showing their hand first. When Atom Bank announced a 1.29% fixed five year rate, such was the demand that it has now withdrawn the offer.

Then a few days ago the Yorkshire Building Society announced a 0.89% rate, although not a fixed deal and coming with a number of conditions, but it showed that the Atom offer was not a one off.

It is expected that Santander, the nation’s third biggest lender, is poised to introduce new lower rates within days and with the big boys entering the fray then it certainly will be interesting times with experts predicting they could go as low as 0.5%.

What is clear, however, is that these new deals are not for everybody, and in the case of the Yorkshire, not aimed at first-time buyers. Yet it is first-time buyers who still need help getting on the housing ladder despite the government’s Help-to-Buy schemes.

All the recent research shows that the bank of mum and dad still features strongly and this is particularly so in the southern half of the country where house prices as so much higher. Just a few days ago, figures from MoneySuperMarket showed that in Camden in London it could take 27 years to save for a deposit.

Using data from the Land Registry and the Office of National Statistics (ONS), the research analysed average house prices and average salaries to work out the average required deposit needed to buy a house across 441 local authorities in the UK.

Much is being made of the latest figures from the Council of Mortgage Lenders (CML) which showed that gross mortgage lending in the UK reached GBP 21.4 bln in March, up 19% from the previous month, but 19% lower than a year ago. However, the sharp fall year-on-year was expected as March last year saw significant rises in activity when borrowers, particularly buy-to-let landlords, rushed to beat the introduction of an extra 3% stamp duty on additional homes.

Nevertheless, the CML admits that mortgage lending appears to be in neutral gear. And there are changes within the market with a shift towards first-time buyer and remortgage customers, away from home movers and buy-to-let landlords.

The CML also said that it expects this trend to continue over the short term, as low mortgage rates encourage existing borrowers to remortgage and government schemes help first-time buyers, and it does not expect any marked effect from the general election.

All this comes at a time when confidence in the UK housing market has stabilised, with almost 60% expecting property prices to rise in the next 12 months and over a third feel it will be a good time to both buy and sell. But the confidence tracker report from lender The Halifax shows that those in London are less optimistic on buying prospects compared to the rest of the country.

Also, there is unlikely to be any let up in the steady upward trend in prices. The property market has had Brexit flung at it and yet has not floundered and the surprise snap general election much of a dent.

But the new lower rates are a sign of the times. Indeed, Moneyfacts also pointed out that the average home borrower is now paying GBP 276 a year less than a year ago and it is obvious that the trend is for ever lower deals. But there could be a sting in the tail if the Bank of England decides to increase interest rates which means that ye olde longer fixed rate might still be the best option for many with a question mark hanging over the principles involved. Of course, the real beneficiaries in all of this are the brokers who will be inundated with requests form home owners wanting to remortgage.

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