Five ways lenders are making mortgages more attractive after the coronavirus lockdown
The property market might have sparked back into life following the lockdown, but many homebuyers still face a restricted choice when it comes to mortgages.
The COVID-19 pandemic resulted in banks withdrawing more than half of the deals and buyers using the smallest deposits seeing their options dry up almost entirely.
There are signs now, however, that lenders are looking to entice movers with deals that reflect the difficulties they face in 2021.
Here, Which? examines a few of the biggest recent developments within the mortgage market and explains how buyers with bigger deposits can continue to secure great rates.
1. Interest-only options on the rise
Research by Moneyfacts implies that 61% of mortgages currently on the market offer an interest-only option, up from 48% in March.
The comparison website says interest-only deals could be a viable choice for borrowers who’ve suffered financially because of COVID-19.
Interest-only mortgages permit you to reduce your monthly expenses, however, you have to have an agenda in place to settle the capital.
The broker Legal & General says enquiries for interest-only deals have risen significantly recently, and this may continue as borrowers come off mortgage payment holidays.
If you’re considering an interest-only deal, it seems sensible to take advice from a whole-of-market mortgage adviser before rushing in.
2. Fixing with flexibility
Longer-term fixed-rate mortgages have become in popularity in the last few years, but high early repayment charges (ERCs) of up to 5% from the balance really are a big caveat.
This week, TSB launched what it really claimed to become an ‘industry-first’ five-year fix without any ERCs following the first 3 years.
The deal happens to be available for existing customers seeking to remortgage and will also be extended to first-time buyers and home movers on 17 July.
The mortgage is available at up to 80% loan-to-value with a rate from 1.99% and no upfront fee.
Five-year deals allow you to lock in a great rate for longer but take the time to consider your plans before tying yourself into this type of long-term fix.
3. A 10-year term with a rate below 2%
Barclays has introduced a brand new 10-year fixed-rate mortgage with an initial rate of just one.99%, providing a low-cost choice for those searching for longer-term rate security.
The deal is only open to borrowers having a deposit of at least 40% and comes with a fee of lb999.
The major caveat, again, may be the ERC. Barclays charges a 5% ERC for the entire 10-year term, which is different from other providers on the market.
For instance, Virgin Money’s ERC is 7% in the first year, but reduces through the term to reach just 1% in the 10th year.
10-year fixes can be a wise decision if you’re not planning to move home for any decade, or maybe you’ve only got Ten years left in your term, but the lack of flexibility available means these deals won’t be suitable for everyone.
4. Reduced prices for energy efficiency
With the government pushing forward its energy-efficiency policies, we're able to see more lenders begin to offer ‘green’ mortgages.
These deals, which offer lower rates for those who make energy-efficient improvements for their homes, have been about for a few years, but have largely remained a distinct segment product.
This week, Saffron Building Society launched its new ‘retro fit’ mortgage, which comes with an initial rate of just one.47% at as much as 80% loan-to-value (with a lb999 upfront fee).
Borrowers who upgrade the efficiency of their home by a minumum of one energy performance certificate (EPC) band can benefit from an interest rate reduction of 0.1%.
5. Help for self-employed buyers
Self-employed homebuyers and remortgagers may be worried about their options in the wake of COVID-19, but there are signs that lenders want to help.
This week, Beverley Building Society announced its ‘bounce back’ initiative, allowing self-employed borrowers to be considered for any 75% mortgage with just twelve months of accounts.
There’s also the option for borrowers with more established businesses to take the first year of the mortgage interest-only.
If you’re self-employed and are considering applying for a mortgage, you might find that smaller building societies that adopt a more ‘case by case’ assessment might be your best bet.
It may also be helpful to take advice from a large financial company, who can survey the market to find you a suitable deal.
Are deals returning to the market?
In the wake of the coronavirus outbreak, the amount of mortgage deals available on the market halved.
A few months on, we are beginning to see an uptick in deal numbers, but you may still find very few possibilities to first-time buyers with small deposits.
There are currently 2,689 fixed-rate deals available on the market, but only 45 of these are for sale to first-time buyers with deposits of 10% or less.
For buyers with bigger deposits, rates have remained attractive. The chart below shows the least expensive rates now available at 60%, 75% and 85% loan-to-value.
