The first two months of 2010 have seen fixed rates chopped and tracker deals whittled down in cost and the best bit is that this is not only for those low-risk borrowers who, let’s face it, have never really had too many problems getting a mortgage. If you are classified as ‘high-risk’ or have only a minimal deposit, it’s your time too.

In fact, since November of last year mortgage rates for borrowers with a 10% deposit have fallen from 7% to 5.3% – that’s a third. To put this into real terms, if you take out a 90% loan to value deal now it will be £160 per month cheaper than if you had taken it out in November.

Despite the more favourable market, when it comes to deposits it’s still a case of the bigger the better; even with the best deal on a 90% mortgage, you will still pay more than twice the interest rate of a 60% mortgage. A 60% loan to value deal will attract an interest rate of approximately 2.58% compared to that 5.3% mentioned above.

New mortgage deals

Yorkshire Building Society: new range of mortgages at up to 85% loan to value

HSBC: new range of mortgages including a super-low five-year fixed rate at just 4.64%. This deal is only available up to 60% loan to value and attracts a fee of £999, so you will need a lot of money up-front to qualify.

Norwich & Peterborough Building Society: a new range of three-year discounted variable rates available up to 75% loan to value. The fee for this one is £695 and rates start at 2.95%.

Northern Rock: two-year fixed rates now start at 3.59% and 2-year trackers from 2.65%. These mortgages are part of the NR’s new Everyday range, which are not as flexible as the existing, fully flexible, range.

The Post Office: range expanded to include 75% loan to value deals. Set up fee is £599.

Current Best Mortgage Buys

The following are based on the total cost over the first 2 years and assume a property price of £250,000 on a 25 year repayment mortgage.

10% deposit, getting a mortgage of £225,000 on a property costing £250,000

HSBC term tracker rate at 4.99% (Base+4.49) with no fee

Santander (Abbey) two-year tracker rate at 5.49% (Base+4.99) with a £995 fee

Santander (Abbey) five-year fixed rate at 6.69% with a £995 fee

15% deposit, getting a mortgage of £212,500 on a property costing £250,000

Leek United BS
two-year discounted rate at 2.95% with a £195 fee

HSBC term tracker rate at 4.99% (Base+4.49) with no fee

Leek United two-year fixed rate at 4.79% with a £195 fee

20% deposit, getting a mortgage of £200,000 on a property costing £250,000

Leek United BS two-year discounted rate at 2.95% with a £195 fee

Nottingham BS three-year tracker rate at 3.99% (Base+3.49) with a £795 fee

Leek United two-year fixed rate at 4.79% with a £195 fee

25% deposit, getting a mortgage of £187,500 on a property costing £250,000

ING Direct two-year tracker rate at 2.64% (Base+2.14) with a £795 fee

ING Direct term tracker rate at 2.89% (Base+2.39) with a £695 fee

First Direct 2-year fixed rate at 3.29% with a £998 fee

30% deposit, getting a mortgage of £175,000 on a property costing £250,000

Santander (Abbey) three-year tracker rate at 2.54% (Base+2.04) with a £995 fee

ING Direct term tracker rate at 2.89% (Base+2.39) with a £695 fee

First Direct two-year fixed rate at 3.29% with a £998 fee

40% deposit, getting a mortgage of £150,000 on a property costing £250,000

HSBC
two-year discounted rate at 2.39% with a £999 fee

First Direct term tracker rate at 2.89% (Base+2.39) with no fee

Yorkshire BS two-year fixed rate at 3.39% with a £495 fee

With the economic crisis deepening further still and expected to get worse throughout 2009, lending criteria will become stricter and more homeowners will find it tougher still to remortgage. With major lenders experiencing financial problems of their own and the rapid decline in house prices, obtaining a good mortgage deal is more difficult than ever – especially for those in negative equity or those with adverse credit histories.

To try and breathe life into the housing market and get it moving, the Bank of England has cut the base rate of interest four times since October: the latest in March saw the base rate fall to an all-time low of 0.5%, with further cuts predicted before the end of 2009. This has meant good news for those with tracker mortgages, some first-time buyers and some re-mortgagors, but many homeowners have not benefited, for various reasons.

Some lenders have not passed interest-rate cuts onto customers (some tracker mortgages impose a collar, which means the interest rate cannot fall below a certain point) and competitive mortgage products are often withheld from those with high LTV (loan to value) mortgages: this refers to the amount of mortgage versus the value of the home, and many people have found themselves with a high LTV as a result of the slump in the housing market.

Even though lenders are able to pass interest cuts onto customers, few are doing so: only a handful have reduced their standard variable rate accordingly. So, for people wishing to remortgage at this time, finding a good deal is harder than ever. Here to help is a brief guide to the different popular types of mortgage and the pros and cons of each:

Tracker Mortgage: a tracker mortgage is linked to the Bank of England interest rate and thus, not surprisingly, this type of mortgage is very popular at the moment. In respect of this, a tracker mortgage is a more attractive option at the moment than the discount mortgage, given that these types of mortgage follow the BOE base rate rather than a lender’s SVR. The table below shows the best tracker mortgage deals on the market at present:

Please note that the above calculations are based on a loan of £150,000 with a LTV of 60% and a mortgage term of 25 years, and the type of mortgage you may be offered is subject to your personal circumstances.

If you are interested in switching to a tracker mortgage, try and find one with no redemption penalties (although these are few and far between at present!): this way, if interest rates start to increase you can switch to a fixed rate mortgage.

Fixed rate mortgages have always been very popular as they allow people to budget long-term: whatever payments are set at, they remain at that amount for a determined period, usually 2 or 3 years. The following table shows the best fixed rates on the market at the moment, based on the criteria above, but remember any deal you may get is dependent on your personal financial circumstances:

The key when remortgaging is to be prepared: start looking for a new deal a few months before your current deal ends, in order to spot the best deals in advance. This is worth doing, as most deals are valid for 3-4 months; some are even available for 6 months.

Make sure you take into account all upfront fees involved in remortgaging (such as valuation and arrangement fees) and redemption penalties, so that you can be sure remortgaging is going to be profitable in the long term. Consider approaching your current lender to see what they can offer you; if they offer you a good deal, you will save hundreds in upfront fees and be spared the hassle of switching providers.

If, for some reason, you cannot remortgage and find yourself on a standard variable rate, don’t panic: at the moment, rates are very low and so the move should not affect you too much. Also, there is no tie-in period with the SVR, thus in a few months you may be in a position to secure a better remortgage deal.

Finally, navigating the remortgage market can be very daunting: if you are having problems finding the perfect remortgage to suit your personal circumstances, enlist the help of a mortgage broker.

As Robert Sinclair, Director of the Association of Mortgage Intermediaries (AMI), says;

“Even with a more restricted range of lenders and mortgage products, the issues and pitfalls facing people are well set out.  The need for help from a mortgage intermediary who can explain the various issues and then recommend the most appropriate product has never been greater. This is where a mortgage intermediary’s knowledge of the market has its greatest value”

Mortgage Lending

Net lending, which strips out repayments and redemptions, had bounced back in December to £1.8bn, but has now returned to the levels seen in October and November despite large cuts to the Bank base rate, now at 0.5%, their lowest ever level.

New buyer numbers remained the same as in December, with 31,000 mortgages approved for house purchases which is up on November’s figure of 27,000 but far below January 2008 figure of 70,000.

Remortgaging has fallen since last autumn as fixed-rate mortgage holders find that the best deal is with their current banks variable deal. This has been particularly true of those with little equity in their homes.

In October, 72,000 remortgages were approved, this figure had fallen to 36,000 by December and in January it dropped to 34,000. The value of those loans dropped from £9.9bn in September to £4.3bn in January.

Buyer difficulty – It is the lack of mortgages offered for first time buyers, the 85% and above LTV which has continued to be reflected in the number of mortgages taken up. The best rates are those cash or equity rich with at least 40% deposit, in comparison you will pay approximately 5% above the base rate for any mortgage with a 10% LTV.

Falling house prices are also deterring some people from entering the market. This morning, Hometrack said prices in England and Wales had fallen by 0.8% in February, and other market surveys have also reported a continued drop in values.

Howard Archer, chief UK economist at IHS Global Insight, said: “The Bank of England reported that mortgage approvals remained mired near record low levels in January at a level consistent with markedly falling house prices. This defied expectations of a modest further rise in mortgage approvals from November’s record low.”

Meanwhile, the Bank’s figures for unsecured lending, through credit cards, personal loans and overdrafts show a £403m increase in net borrowing in January, which is higher than December’s figure of £271m. However, lending remains below the six-month average.

Archer said: “Consumer borrowing is extremely low by past norms and it is likely to be limited over the coming months by ongoing very tight lending conditions, as well as many people increasingly looking to rein in their borrowing.”

Additional figures from the Building Societies Association showed savers withdrew more than they paid in January, recording a net outflow of £390m. However this is not uncommon in the first part of the year.

“The withdrawal represents less than 4% of the total net receipts received by building societies in 2008,” said Coles. “It is not unusual for building societies to have a net withdrawal in January, as savers take money out of their accounts to pay for Christmas expenditure. Outflows have occurred in six Januaries out of the last 10.”

Coles admitted low interest rates had reduced the incentive to save, but said that despite this 1.2m accounts had been opened in 2008.

When do you think it will be easier to get a mortgage?

The lifetime tracker loan follows base rate plus 1.69%, and attracts an arrangement fee of £399. We think that its a winner, especially with such a low arrangement fee.

Richard Morea of London and Country, reportedly commented: “This is the best deal for some time and it looks like it is going to be very popular. It was launched on Wednesday (before the base rate reduction) so I’m assuming that it will actually go on sale. The market has been crying out for a reasonably priced tracker for some time – this is going to be snapped up.”

We note that there are some other banks offering loan to value mortgages of 90% however not many have sub 6% interest rates and often incur arrangement fees of closer to £1,000.

Have you found a better 90% LTV mortgage? Please let us know below.

What is the LIBOR?

London Inter-Bank Offer Rate. It is the interest rate that the banks charge each other for loans. This rate is applicable to the short-term international interbank market, and applies to very large loans borrowed form anywhere from one day to five years.

A bank with liquidity requirements can borrow quickly from other banks with surpluses. The LIBOR is officially fixed once a day by a small group of large London banks, but the rate changes throughout the day.

We have outlined the change in the LIBOR over the past month.

Libor:           04-Dec    03-Dec    02-Dec    1 Week ago    1 Month Ago
Overnight    3.000%    3.000%      3.006%     2.994%           4.503%
1 Month       3.239%    3.310%      3.351%     3.301%           5.439%
3 Months     3.791% 3.840%      3.881%     3.946%           5.680%

One month ago the 3 month LIBOR rate was at 5.68% and now it is over 2% less than that rate, currently at 3.79%. So the interest rate the banks pay for borrowing from each other has decreased by approximately 33% in a month! This is of course to the drastic base rate cuts down to 3.00% and now 2.00%. We should then in theory start to see new mortgage interest rates fall quite quickly as history shows normal mortgage rates sit maybe .5% to around 1.5% above the base rate depending on the LTV and borrower.

The problem is liquidity though this time round the banks simply do not have much cash and therfore like to hoard it and only lend out at high interest rates and low LTV’s.

When do you think the average 85% LTV mortgage will return at a rate below 5%?