Mortgage costs hit 5-year low

New fixed-rate and tracker-rate mortgages have become cheaper this week – with some rates falling by as much as 0.6 percentage points – as new figures show that homebuyers’ ability to repay has improved.

According to the Council of Mortgage Lenders (CML) the proportion of income needed to pay new mortgages is now at a five-year low.

Yorkshire Building Society has reduced its fixed rates by up to 0.6 percentage points, while Santander has cut a range of its tracker offerings by as much as 0.5 percentage points. These moves follow cuts announced last week by Nationwide Building Society and Coventry Building Society.

“Competition in the mortgage market has filtered through into the new year, which is good to see,” said David Hollingworth of London & Country, the mortgage brokers.

HSBC will also reduce some of its mortgage rates from Monday. It will cut its market-leading lifetime tracker rate to 2.49 per cent – the new rate tracks the Bank of England base rate plus 1.99 percentage points. This deal is available for mortgages of up to 60 per cent loan-to-value and carries a £999 fee. Borrowers with smaller deposits can access the same rate and fee through Mansfield Building Society, which will lend up to 75 per cent of a property’s value.

Borrowers with small deposits also have more choice. Santander has laun-ched a new 90 per cent loan-to-value two-year tracker rate mortgage at 4.99 per cent – Bank base rate plus 4.49 per cent – with a £995 fee.

Only Royal Bank of Scotland has a lower rate at 4.69 per cent – Bank base rate plus 4.19 per cent – with no fees.

Brokers say lenders have cut rates on fixed mortgages because of an increase in competition rather than any change in swap rates, which are used to set fixed-rate mortgage prices. Ray Boulger of John Charcol said lenders were far less dependent on swap rates for their new funding, using deposits from savers to balance the books instead.

Boulger said: “It is also John Charcol’s belief that lenders are becoming more comfortable with the wider economy, most notably the bounce in house prices and the expectation that interest rates will remain low for some time – resulting in far fewer repossessions than initially expected.”

New data released this week showed that home movers in November only needed 10.6 per cent of their gross income to cover mortgage interest payments, down from 14.4 per cent a year earlier – a result of falling interest rates and house prices.

First-time buyers are also better off, with the proportion of income needed for interest payments falling from 18.2 per cent in November 2008 to 14.4 per cent a year later. According to the CML, this is the lowest level since May 2004.

But while affordability has increased, experts warn that strict lending criteria and big deposits are still keeping many potential homeowners from getting a foot on the property ladder.