Mortgages numbers have halved in the last three months and rates are higher as cautious lenders prepare for the end of the furlough scheme.
For the third consecutive month mortgage rates have increased after reaching a low in June 2020 according to Moneyfacts and the number of mortgages offered from lenders have reduced by half.
The average 2-year fixed rates were 1.99% in July rising to 2.38% in October increasing the cost of mortgage repayments for first time buyers, home movers and remortgage buyers.
Lenders have been cautious as the furlough scheme comes to an end reducing the number of mortgages from 5,222 in March to 2,259 this month.
Costs rising for mortgage borrowers
In the last month mortgage costs have increased 0.14% for the 2-year fixed rates rising to 2.38% and 0.13% for the 5-year fixed rates rising to 2.62%.
For first time buyers this would mean they would need to pass an affordability test from lenders based on the higher mortgage costs if they have a large enough deposit from their savings.
The table from Moneyfacts shows the change in 2-year and 5-year fixed rates for mortgages from March to October 2020.
| Month | 3-months | Annually |
|---|---|---|
| March 2020 | 2.43% | 2.74% |
| May 2020 | 2.09% | 2.35% |
| June 2020 | 2.02% | 2.26% |
| July 2020 | 1.99% | 2.25% |
| August 2020 | 2.08% | 2.34% |
| September 2020 | 2.24% | 2.49% |
| October 2020 | 2.23% | 2.62% |
As a result of the uncertain economic outlook, lenders may have factored in a proportion of the rate rise to take account of future defaults.
Lenders are concerned that the end of the government furlough scheme may result in higher unemployment levels and if house prices fall, the risk of negative equity for homeowners.
Higher rates do not necessarily apply to buy-to-let investors as they must have a 25% deposit and demonstrate rental income can exceed 145% of a notional mortgage interest rate.
For older equity release buyers, fixed rates of 2.5% upwards are available from a lifetime mortgage with no affordability checks and can be used to repay an interest only mortgage and take future drawdowns.
Availability of mortgages decreasing
The number of mortgage deals have reduced 153 from 2,412 in September to 2,259 in October and the figures are more dramatic since lockdown with 5,222 deals in March reducing -43% or by 2,963.
The table from Moneyfacts shows the number of mortgage deals available from March to October 2020.
| Date | All deals |
85% LTV |
|---|---|---|
| March 2020 | 5,222 | 664 |
| May 2020 | 2,566 | 208 |
| June 2020 | 2,810 | 286 |
| September 2020 | 2,412 | 347 |
| October 2020 | 2,259 | 329 |
Lenders are concerned with a high loan to value (LTVs) and there are only 12 mortgage deals at 95% LTV available compared to 391 deals back in March.
The options are better for home movers with a larger deposit of 15% as the number of mortgage deals are 329 for 85% LTV although this is down from 664 before lockdown.
It seems lenders are comfortable with 85% LTVs as the maximum and as the number of mortgage deals has actually increased 58% from a low of 208 in May.
What are your next steps?
Call our LCM mortgage brokers for advice if you are a first time buyer, want to remortgage your existing home for the best mortgage deal, moving home or a buy-to-let investor.
Start with a free mortgage quote or call us and we can take your details. Learn more by using the property value tracker chart, mortgage costs calculator and equity release mortgage calculator.
For equity release buyers our London City Mortgage advisers can recommend lifetime mortgages allowing you to receive cash from your property for home improvements, holidays or even give to a family member.
