New scheme gives buyers chance to get on ladder

More people will be celebrating moving in with champagne as the market picks up
More people will be celebrating moving in with champagne as the market picks up

THE number of mortgages available for borrowers has increased by 34 per cent since April 2012 when the Bank of England’s Funding for Lending scheme was announced, with fixed rate and tracker mortgage rates falling.

Analysis by one of the leading comparison sites found the number of mortgages available for borrowers has increased from 2,458 to 3,288 products since April 2012, with the total number of products available at the highest levels since August 2011.

The number of 60 per cent loan to value (LTV) products available has almost doubled (94 per cent increase) from 285 to 553 over the last 12 months. Similarly, 80 per cent LTV products have seen a 48 per cent increase and 75 per cent LTV mortgages have increased by 30 per cent.

Rates on fixed mortgages have also decreased, with rates on two-year fixed mortgages falling from 4.21 per cent in April 2012, to 3.28 per cent, while rates on five-year fixed mortgages have also fallen from 4.67 per cent to 3.84 per cent, according to research by MoneySupermarket.

Although the fall in fixed rates is welcome, this is often being offset by the rise of the cost of fees with average total fees for a two-year fixed mortgage increasing from £1,170.50 to £1,393.17, a 19 per cent increase since April 2012. The average fee on five-year fixed rate mortgages has risen by 22 per cent, from £996.83 to £1,218.13.

As a result, anyone looking for a mortgage needs to make sure they do not overlook the impact of the fee and work out the total cost of borrowing, rather than focusing on the headline rate alone. Products with the lowest headline rates are not necessarily the best value over the term of the deal: once fees are factored in, a product with a slightly higher rate but lower set-up costs may actually prove cheaper.

Clare Francis, mortgage expert at MoneySupermarket said: “It’s a great time for mortgage borrowers.

“Since the Bank of England’s Funding for Lending Scheme launched last August, we have seen a significant increase in the number of new mortgage products on offer. In addition, two and five-year fixed rate deals are currently at an all-time low. However, the thing to watch out for is the set up costs. Some of the lowest rates have very high fees.

“It’s very easy to be attracted by low headline rates when looking at mortgages, but you must also factor in the fees you’ll be charged to take the mortgage out. Set-up costs can vary greatly between providers so taking the time to work out the total amount you have to repay over the term of the offer is essential.

“When comparing mortgages you should always look at the total amount you would repay, including fees, over the term of the deal. This is the only way to identify which product will be the best value to you.

“Think about whether you want a fixed or variable rate deal, and if you do opt for a variable rate mortgage you need to ensure that you will be able to afford your monthly repayments if and when interest rates do rise as they won’t stay at this level forever.”