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Sub one per cent mortgages will boost lender market share and open door to high risk borrowers

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  • 03/06/2021
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Sub one per cent mortgages will boost lender market share and open door to high risk borrowers
Mortgages with rates at below one per cent are headline-grabbing deals that make the most of maturing terms, brokers and other mortgage experts have said.

 

In April, Hinckley and Rugby Building Society launched a 0.99 per cent deal at 60 per cent loan to value (LTV). This was followed by Platform’s 0.95 per cent product, TSB’s 0.99 per cent deal and Nationwide’s 0.99 per cent mortgage at the same lending tier this month. 

Rupi Hunjan, CEO and founder of Censeo Financial, said the rates were “fantastic,” and would help get people in. 

“There are a lot of remortgages going on and it’s about market share. It’s a good way to get market share at a low risk,” he added. 

Industry figures have suggested that there will be as many as 700,000 mortgages maturing this year. 

Rachel Springall, spokesperson for Moneyfacts added: “The sub one per cent mortgages to surface in recent weeks have clearly grabbed the spotlight, but genuinely a deal with a low rate and high fee may only be suitable for someone with a substantial mortgage and who can meet the eligibility criteria.  

“If borrowers were to approach a broker and assess the deal based on true cost, they may well find there are better off elsewhere on a deal with a slightly higher rate but with a more reasonable fee and incentive package. It really does depend on their circumstances and what they are looking to borrow, so seeking advice is wise.” 

Chris Sykes, associate director and mortgage consultant at Private Finance, said mortgages with rates lower than one per cent made headlines because they showed how cheap borrowing was at the moment. However, the fees attached to the products made them more suitable for loans over £300,000.  

Otherwise, he said higher rate products with lower fees tended to be more beneficial to borrowers. 

TSB’s remortgage product has a fee of £1,495, while the Nationwide and Platform products have arrangement fees of £1,499. 

 

Trickle down effect 

Although there have been reductions in rates higher up the LTV band, sub-one per cent mortgages are unlikely to significantly impact pricing across the board. 

Sykes noted that the reduction in rate for Platform’s mortgage was just nine basis points, smaller than the up to 40 basis point cut that mortgages for those with smaller equities have seen. 

Data from Moneyfacts in April showed rates for two and five-year fixed mortgages at 95 per cent LTV fell by 0.45 and 0.15 per cent respectively during the month.

As faith is restored in the economy, Sykes said, then the market will see gaps in pricing close between 85, 90 and 95 per cent LTVs. 

Danny Belton, head of lender relationships at Legal and General Mortgage Club, added it was not “necessarily the case that rate drops at 60 per cent LTV will mean savings for others.”  

He reiterated that lenders were able to offer low rates at lower LTVs because applicants were less at risk of defaulting. 

“We are currently living in one of the most affordable borrowing climates in recent history and the emergence of sub one per cent mortgages will undoubtedly be welcome news for homeowners who qualify,” Belton said. 

While this may not have a direct impact on pricing for those with smaller deposits and equities, Belton said: “It is possible that mortgage lenders are choosing to offer these great rates at lower LTVs to boost the proportion of low-risk lending on their books.  

“This opens the door to further higher risk lending, which is good for people such as first-time buyers as it ensures there is good product choice.” 

Moneyfact’s Springall added: “There is much more scope for lenders to cut pricing in the higher LTV sectors, but we have only recently seen product choice grow in this area of the market, after a significant drop due to the pandemic.  

“With this in mind, it may be a few weeks yet before lenders consider slashing rates on higher LTV mortgages. Instead, they may well just maintain their presence in the market, or make minor tweaks for borrowers who have been waiting for deals to return.” 

Stephanie Charman, head of strategic relationships, lender, at Sesame Bankhall Group said pricing had become “extremely competitive,” at the 60 per cent LTV tier, but agreed it bore little impact on other mortgages. 

Product pricing is individual to each lender based on their strategy and risk appetite,” she said. 

This sentiment was also expressed by Hunjan, who noted that each bank and building society had differing risk and rewards scenarios. 

In light of this, Charman also said the use of low rate mortgages to attract borrowers would only be a good thing for the mortgage market as a whole. 

She added: “Lenders across all sectors of the market find themselves in a positive position where they are looking to lend. We are currently seeing regular reviews of product ranges with a consistent downward trend across all LTV bands, which can only be positive for consumers. 

“With the stamp duty holiday end of June deadline fast approaching, we can only speculate as to what impact this will have on the current positive momentum we’re seeing in purchase activity, fuelled by increased customer demand.” 

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