Mortgage rates cut for borrowers with big deposits

Homebuyers who can afford a 30 per cent deposit can now access cheaper tracker and fixed-rate mortgages, following rate cuts from Woolwich and Northern Rock.

Woolwich has cut its lifetime tracker mortgage rate for loan-to-value (LTV) ratios of up to 70 per cent. It now charges 2.29 percentage points over the Bank of England base rate, giving an effective rate of 2.79 per cent at present. This is a reduction of 0.45 percentage points on its previous lifetime tracker deal. Woolwich has also reduced the period in which a 1 per cent early redemption charge applies, from three to two years.

Northern Rock is now making its best rates available on LTV ratios of up to 70 per cent, rather than 65 per cent previously. At the same time, it is cutting its fixed rates and reducing the £995 arrangement fee for all residential purchases to £595. Its cheapest two-year fixed rate for purchases is now 3.75 per cent – a reduction of 0.34 percentage points. Rates for LTV ratios up to 75 per cent are being cut by 0.16 percentage points but remain more expensive at 4.55 per cent fixed for two years.

Commenting on Woolwich’s decision, Ray Boulger of broker John Charcol said: “It is excellent news for the tracker market and propels Woolwich to the top of the tracker best buys tables for LTVs over 60 per cent and up to 70 per cent. It also makes 2-5 year trackers up to 70 per cent LTV largely redundant, as this lifetime tracker is cheaper than shorter term deals.”

Buy-to-let property investors – who have seen the supply of cheap mortgage finance dry up in the past two years – can also apply for reduced rates. Northern Rock has cut its two-year fixed rate for LTV ratios of up to 70 per cent by 0.5 percentage points, to 6.09 per cent. Buyers who require a lower LTV of 60 per cent will now pay 5.49 per cent. Both deals carry a 2.5 per cent fee.

“With so little competition in the buy-to-let market, it is particularly encouraging to see such substantial reductions from Northern Rock, coupled with the improvements across the board announced by Nationwide subsidiary The Mortgage Works from the end of last week,” Boulger said.

However, the gap between these rates and those offered to borrowers with smaller deposits remains wide. New research from realpricecomparison.com shows that ‘best-buy’ mortgage rates for borrowers needing 90 per cent loans can be double the level offered borrowers needing only 60 per cent.

On average, borrowers who can put down a 40 per cent deposits will currently pay 2.5 per cent, compared with 5.34 per cent for those with 10 per cent deposits. For someone needing a £200,000 mortgage, that equates to a difference of £318 a month, or £3,822 a year.

Francis Ghiloni, commercial director at realpricecomparison.com said: “With the Bank of England base rate at 0.5 per cent, borrowers could be forgiven for thinking rates ought to be lower and that there should be good deals available. There are but they tend to be restricted to those with big deposits who are seen as a lower risk.”