The cost of fixed rate mortgages for borrowers has reduced but Coronavirus fears have seen lenders withdraw many products.
Uncertainty over the impact of Coronavirus has seen lenders withdraw high loan to value (LTV) products popular with first time buyers placing a deposit of 10% or less according to Moneyfacts.
At the same the cost of mortgages has reduced with the average two year fixed rate reducing from 2.52% in January to 2.37% in March to the benefit of remortgage buyers.
It is difficult for anyone with a smaller deposit to purchase or remortgage as most mortgage lenders are offering LTVs up to 75% or less, choosing to focus on existing customers and existing applications.
Fixed mortgages rates reduce
The Bank of England reduced base rates to an all time low of 0.1% on 19 March and this has contributed to the lower fixed mortgage rates for borrowers.
This table from Moneyfacts shows the two year and five year fixed rates for mortgages from August 2018 to April 2020.
| Date | 2-year fixed | 5-year fixed |
|---|---|---|
| 1 Aug 2018 | 2.53% | 2.93% |
| 1 Jan 2019 | 2.52% | 2.94% |
| 11 Mar 2020 | 2.43% | 2.73% |
| 19 Mar 2020 | 2.41% | 2.71% |
| 1 Apr 2020 | 2.37% | 2.68% |
The average two year fixed rate has reduced 0.06% since 11 March 2020 and the five year rate is lower by 0.05% with standard variable rates reducing the most by 0.14%.
The main factor influencing fixed rates is the availability of cheap money to banks and this is either from savers or the money markets buying “swap” rates for a certain period.
Swap rates are sensitive to future expectation of interest rates and inflation with the two year swap rate reducing from 0.71% in February to 0.45% in April resulting in lower mortgage rates.
Older equity release buyers have also benefited as they can secure lower fixed rates of 2.8% upwards for a lifetime mortgage, using the cash to repay an interest only mortgage or even purchase a new car.
Large fall in mortgage products
The number of mortgage products from lenders have decreased by 29% due to the Covid-19 crisis and on 19 March there were 5,177 available reducing to 3,654 in April.
With higher risks of unemployment in the future, lenders are increasing the minimum loan to values which means you now need a deposit of 25% of the property value.
Eleanor Williams, finance expert at Moneyfacts said, the recent withdrawal of many higher LTV mortgage products and home purchase products is hopefully a temporary measure.
Prospective home movers currently on your lenders standard variable rate can switch to a two year fixed rate deal and save an average 2.39%, helping to reduce your monthly repayments and increase your deposit.
Fewer products do not have the same impact on buy-to-let investors and the minimum deposit is 25% and with higher deposits they are able to access low two year fixed rates from 1.19%.
What are your next steps?
Speak to our LCM mortgage advisers if you are planning to move home, buying your first home, remortgaging your existing home to a new cost effective mortgage deal or are a buy-to-let investor.
Learn more by using the mortgage monthly cost calculators, equity release calculator and property value tracker chart. Start with a free mortgage quote or call us and we can take your details.
For equity release buyers our London City Mortgage brokers can recommend lifetime mortgages allowing you to receive cash from your property to help maintain your standard of living or pay for a loft conversion.
