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Data show rates falling as access to the market widens


Published: 10 February 2016 | Author: Bernard Clarke

Data showing a renewed appetite over the last year for lenders to advance loans at higher loan-to-value (LTV) ratios suggest that access to the mortgage market has been widening - partly encouraged by the successful  introduction of government support measures like the Help to Buy mortgage guarantee scheme.

The data comes as the most recent Bank of England credit conditions survey, published in January, reported that spreads were narrowing and firms were showing a strengthening desire to build market share. Overall, credit quality remains good, the survey concluded, with the Bank reporting that both default rates and losses given default on mortgages had fallen significantly in the final quarter of last year.

The Bank’s data also showed that mortgage rates have fallen significantly over the last year - with the largest falls available to those wishing to take out longer-term fixed-rate mortgages. 

Data for November 2015 - the latest available from the Bank - showed that, over the preceding year, the weighted average 10-year fixed-rate loan, at 75% loan to-value (LTV), had declined by 70 basis points to 3.34%. Over the same period, the Bank recorded lower rates for almost all types of loans, with a two-year fixed rate mortgage 27 basis points lower at 1.9%.

Credit availability

The latest credit conditions survey showed that the availability of secured credit to households had increased again in the final quarter of 2015. In the two preceding quarters, credit availability had grown even more strongly, with conditions improving more noticeably for those borrowing at higher LTV (more than 75%). 

The survey found that overall spreads on secured lending to households – relative to Bank rate or an appropriate swap rate - had “narrowed significantly” in the fourth quarter of last year. 

Market share objectives for firms strengthened in the final quarter, with lenders reporting that demand for secured lending had increased.

Conditions look set to remain favourable for borrowers in the weeks ahead. Firms predicted strong availability of secured credit in the first quarter of this year, and a strengthening appetite for risk over the same period.

Moneyfacts data

Meanwhile, a recently published survey by Moneyfacts, looking at mortgages at different loan-to-value (LTV) ratios, showed that the largest reductions in advertised rates had been for borrowers seeking higher LTV mortgages.

The Moneyfacts survey found that, in the 12 months to January 2016, average rates fell across the board, with the largest reductions – of almost 80 basis points over the year – on 90% mortgages.

Table 1: Average fixed-rate mortgages

  January 2015 January 2016 Size of reduction
Average two-year at 60% LTV 2.07% 1.99% 0.08%
Average two-year at 75% LTV 2.85% 2.16% 0.69%
Average two-year at 90% LTV 3.84% 3.06% 0.78%
Average five-year at 60% LTV 2.97% 2.66% 0.31%
Average five-year at 75% LTV 3.25% 2.94% 0.31%
Average five-year at 90% LTV 4.56% 3.79% 0.77%

 Source: Moneyfacts

Commenting on current fixed rates, Moneyfacts said that many were at “never-before-seen levels.” It continued: “Borrowers of all kinds are able to benefit: while those with a bigger deposit are still able to secure the lowest rates, those lower down the housing ladder have been able to see truly dramatic reductions.”

Moneyfacts said rate reductions in the last year had contributed to strong year-on-year growth in remortgaging. “New and old borrowers alike have been enjoying the benefits of downward-spiralling mortgage rates, which have been fuelled by intense competition between providers,” it said.