7th February 2011
There's been good news and bad news in the mortgage market this week. Financial analyst firm Moneyfacts reported that the number of prime residential mortgages has doubled in the past two years, increasing from 1,097 available products in February 2009, to 2,447 today.
Borrowers with a 20% deposit have seen a threefold increase in the number of deals on offer. Many lenders are now making their best deals available to those with a 25% deposit, resulting in the number of deals requiring a 40% deposit falling.
But while the availability of mortgages continues to improve, other factors are not so favourable. The latest figures from the Bank of England show that new mortgage lending fell to a record low in 2010 and advances are expected to drop further during the coming year as tough credit conditions continue.
Michelle Slade, spokesperson for Moneyfacts.co.uk , said: "Although lenders' windows may be full of best buy deals, it doesn't mean they are wanting to lend.
"The increase in the number of mortgage deals for those with smaller deposits is encouraging, but only a limited number of such mortgages are likely to be approved.
"Borrower affordability remains the key factor in lending decisions and lenders remain strict over which borrowers they will accept."
Moneyfacts' viewpoint is backed up by experts at broker John Charcol. Marketing director Drew Wotherspoon, said: "The market is almost reminiscent of a long distant running race. No-one really wants to lead the field for the majority of the race, they would much rather be with a number of their competitors in the chasing pack.
"They are nervous over service levels and taking on too much business, and when you are the front-runner in this market you will get a deluge of business. If a lender finds themselves at the top of best buys they want to quickly drop back and will pull their deals at a moment's notice."
The key to having your mortgage application approved is having a big enough income, a decent deposit and a good credit history. The smaller the deposit you have, the bigger the risk to the bank that it will lose money if your property is later repossessed.
Moneyfacts says the top two-year fix for those with a 40% deposit is 2.65% with a £1,995 fee from Santander. This will set you back £18,411 over the term on a typical £150,000 repayment mortgage, assuming the fee is paid upfront.
In contrast, the top 90% loan-to-value (with a 10% deposit) two-year fix, from Newcastle Building Society, is 5.15% with an £894 fee, which costs £22,254 over the term.
Your credit history is important as you need to be able to prove to the bank or building society that you are likely to repay the debt and that you have handled credit well in the past.
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