A group of UK lenders have started the next phase of mortgage rate increases by targeting a new category of mortgage products – those for contractors with low deposits. The latest move follows further increases in fixed rates, with shorter term fixed deals now also subject to rises with certain lenders.
The main culprit for the hike in pricing for low deposit mortgage options has been the Yorkshire Building Society Group, which contains lenders like Chelsea, Norwich & Peterborough, and Accord. Aldermore have also followed suit by increasing the rate on their flagship Help to Buy mortgage, which only requires a 5% deposit.
Mortgage rates with Yorkshire Building Society and Accord in particular have traditionally challenged some of the larger banks for the lowest rates on offer, and Aldermore launched into the Help to Buy market amidst a blaze of publicity only a few weeks ago, claiming they wanted to challenge traditional lending options. All seem to have changed their stance by increasing rates on their riskiest lending.
The Aldermore Director of Residential Mortgages, Charles Haresnape, went as far to say that “the era of cheap money is starting to wind down”, which may be very bad timing for contractors looking to use a deposit of 10% of less, hitting first time buyers doubly hard in an era of increasing house prices.
The names of the lenders may not be household ones yet, which may be a shred of comfort for some of those contractors, however some of them tend to be seen at the top of the mortgage ‘Best Buy’ tables on a consistent basis, prompting fears that more familiar lenders below them in the pricing tables will also replicate the move.
Even though lenders have been quick to blame the cost of raising the money to lend, they haven’t been helped by the popularity of 5 year fixed rates and 5 – 10% deposit options amongst borrowers.
Mark McBurney, Senior Mortgage Consultant at Contractor Mortgages Made Easy, observed that the changes in pricing for the most popular mortgages were inevitable, and points out the choices typically faced by contractors.
“Fixing a mortgage rate over 5 years is now being perceived as an expensive luxury by many contractors again, especially since November last year. There is a marked step between the best 2 and the best 5 year fixed rates with contractor-friendly lenders like Halifax. There is a 1.55% variance in the rates for those with a 15% deposit, which would mean a massive £322 per month more on a £250,000 mortgage.”
“Even though the recent increases in the Help to Buy and low deposit options will only affect the same £250,000 loan by circa £41 per month, this is just the start. The 5 year fixed options have been going up for several months, which explains the large difference. If demand for the lowest deposits continues, these rate increases will follow suit over the year.”
Article By: Taj Kang, Business Development Director, at Contractor Mortgages Made Easy
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