‘The year the mortgage market moved’, a whitepaper from Moneyfacts, found this was an uptick of £81 since March last year.
This was a higher than normal increase, as average fees fell by £22 to £565 in March 2018 on an annual basis, then by £2 in March 2019 to £563. By March 2020, the average mortgage fee stood at £574.
Variable mortgage fees have increased by £97 since March 2020, while fixed fees have risen by an average of £76.
Moneyfacts found that while fees for variable rate products were still rising, fixed rate product fees had been relatively flat since the end of last year.
Lenders continued to prepare for the worst case scenario, the report found, as evidence showed pricing had been influenced by the risk of default.
This was displayed by the lack of change in rates for mortgages with a loan to value (LTV) of 60 per cent or higher from January 2019 to March 2020. This reflected the stable market conditions, Moneyfacts said.
By April last year, a month into the pandemic, there was sharp rise in the rate differential at 90 and 95 per cent LTV.
Throughout 2020, rate differentials at 75 and 85 per cent LTV was also volatile as lenders worked out where to attribute risk. This coincided with national lockdowns, indicating uncertainty among lenders at the time.
There was another rise in rates across all tiers during spring, when the mortgage guarantee scheme was launched.
However, this was temporary and differentials eventually settled “as providers learned from the experiences of the early stages of the pandemic and were better able to quantify the likelihood of default into a clearer pricing strategy”.
Standard variable rates (SVRs) declined over the course of the pandemic along with the record-low Bank of England base rate.
Average SVRs dropped from 4.90 per cent at the beginning of March 2020 to 4.71 per cent by the start of April and 4.44 per cent by the beginning of August.
By December, average SVRs fell to their current and lowest-ever rate of 4.41 per cent, a 0.49 per cent decrease on pre-pandemic levels.
First-time buyers and mortgage availability
High LTV availability has not returned to pre-pandemic levels despite a sixfold increase in first-time buyer demand, Moneyfacts said.
The whitepaper showed that at the end of May 2021, there were 38 per cent fewer 90 per cent LTV mortgages, and 53 per cent fewer at 95 per cent LTV compared to February last year.
Despite this, 90 per cent LTV mortgages have recovered faster than their 95 per cent counterparts.
Mortgages at 90 per cent LTV fell until October 2020, with a 93 per cent reduction compared to March 2020. By May 2021, product numbers were down 63 per cent.
However, a year on from the pandemic, 95 per cent LTV mortgages are only at two per cent of their pre-Covid level.
The increase of five products at 95 per cent LTV in April this year to 122 by May was driven by the mortgage guarantee scheme. Over 60 mortgages remain under the scheme.
The stamp duty holiday spurred increased demand for first-time buyer mortgages.
When the initiative was announced in July last year, first-time buyer searches increased by 6.7 times compared to February 2020.
Existing homeowners
Remortgage demand surged after the announcement of the lockdown in March last year, with searches doubling on February.
Following this, demand for remortgages declined steadily until July 2020 before stabilising then falling again in December. Searches have not returned to levels seen in March 2020 since.
The whitepaper also found switching borrowers at low LTV tiers were able to make savings. With the introduction of sub-one per cent products at 60 per cent LTV this year, borrowers within this band could benefit from an average rate saving of 0.41 per cent as of April.
Michelle Monck, head of digital at Moneyfacts.co.uk, said: “Our latest white paper, ‘The year the mortgage market moved’, analyses the impact that national lockdowns and government intervention have had on the mortgage market during the past 18 months. Our analysis identifies the difference in motivations and response to the series of national lockdowns between borrowers and lenders. Borrowers have been fast to react to the changing situation during the series of national lockdowns.
“Lenders, as should be expected, have been more cautious.”
She added: “While the effects of unwinding the furlough scheme and the results of the removal of Coronavirus restrictions in the UK are not known, lenders will continue to act with caution.
“This shows lenders pricing in for potential default risk and this strategy of cautiousness is also manifesting itself right now as lenders offer the lowest risk borrowers at 60 per cent LTV record-breaking fixed rates of less than one per cent.”
