Mortgage rates could be slashed again as competition among lenders hots up

  • Lenders plan to cut rates again over the next three months
  • No improvement to loan availability for small firms, despite Government efforts

By Rachel Rickard Straus

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Mortgage rates could drop even further this year as Government efforts to increase lending to homeowners takes effect.

Mortgage deals became significantly cheaper for borrowers in the first three months of this year, according to a Bank of England survey of lenders released today.

Lenders expect rates to be slashed even further over the next three months, as demand increases for both prime lending and buy-to-let lending.

Mortgage availability for those with large deposits remains higher than for those without (Source: Bank of England)

Mortgage availability for those with large deposits remains higher than for those without (Source: Bank of England)

The number of available mortgages has also increased this year, although borrowers with large deposits have seen a greater benefit than those without at least a 25 per cent down payment.

The increase in lending follows the launch of the Government’s Funding for Lending scheme in August, which gives lenders access to cheap finance on the condition that they pass it on to homeowners and businesses.

 

The scheme was cited by many lenders as a factor pushing down on bank funding costs and helping to drive down lending rates.

Previous research has found that the number of mortgages on the market has already increased by around one third since the scheme began.

In the recent Budget, the Government announced further plans to help people to buy a home with a deposit as low as 5 per cent with its Help to Buy scheme.

Good news for first-time buyers: Lenders plan to slash mortgage rates even further, according to a Bank of England survey

Good news for first-time buyers: Lenders plan to slash mortgage rates even further, according to a Bank of England survey

Despite the increase in mortgage availability and the drop in rates, lenders also said their credit scoring criteria was little changed and the proportion of applications which were approved fell slightly.

Analysts said the Bank's latest findings will also pile the pressure on Government to come up with further measures to boost lending to businesses.

 

The report found that an increase in the availability of loans to businesses seen in the first quarter of this year was confined to larger firms, with small and medium-sized companies seeing little change.

The Bank found that corporate credit demand was ‘subdued’, with a significant fall coming from smaller firms.

Its report said: ‘Lenders commented that confidence in the economic outlook remained fragile, and that was weighing on demand.

‘A few lenders noted that some companies might have been discouraged from applying for credit because of a belief that lenders have a low appetite for risk.’

Demand for mortgage to buy a home continues to increase this year (Source: Bank of England)

Demand for mortgage to buy a home continues to increase this year (Source: Bank of England)

The appetite for loans is predicted to pick up across firms of all sizes in the next three months, particularly for large and small companies.

Lenders said they do not expect to see much change in general credit availability to the corporate sector this spring, although the loans on offer are predicted to become cheaper for businesses of all sizes in the next three months.

Howard Archer, chief UK and European economist for IHS Global Insight, said: ‘The survey adds to the pressure on the Bank of England and the Government to come up with further measures aimed at boosting bank lending to businesses, with the focus particularly on easing credit conditions for smaller companies.

Lending to small firms remains significantly lower than for larger businesses (Source: Bank of England)

Lending to small firms remains significantly lower than for larger businesses (Source: Bank of England)

‘A strong possibility is that the Funding for Lending scheme will be adjusted to specifically favour banks that increase their lending to smaller companies.’

Meanwhile, the availability of non-mortgage credit to households is also expected to rise further in the coming months.

Lenders also said they had loosened their credit scoring criteria for credit cards and the proportion of loan applications which was approved increased ‘significantly’.

Demand from households for non-mortgage loans is also expected to increase in the coming months, although it was ‘little changed’ in the first quarter of this year.

Credit scoring criteria for both credit cards and other types of non-mortgage lending to households is expected to loosen over the coming months.

 

The comments below have not been moderated.

It would be completely amoral to push interest rates any lower than they are. Why should savers pay for someone to get on the property ladder? People should have to rent if they can't get a mortgage and wait until they can get a mortgage. This situation is as disgustingly amoral as taking money from savers in Cyprus. - Brenda Blessed , Plymouth, United Kingdom, 04/4/2013 01:30 But I save via my mortgage! I lower interest rate allows me to pay down more of the capital quicker which in turns increases the equity component of my property - in other words low interest rates are good for savers.

Click to rate     Rating   3

Well up will go house price inflation if this is true. Unfortunately Funding for Lending and other government policy never has anything but bad news for savers.

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They can reduce the rates if they want,but the banks have to change their old fashioned criteria for granting mortgages,many people now are self employed and temp,but these young couples are paying £1000 a month rent,if they had a mortgage it would be about £750,if a young couple can prove they have paid rent for two years banks should grant a mortgage.

Click to rate     Rating   5

It would be completely amoral to push interest rates any lower than they are. Why should savers pay for someone to get on the property ladder? People should have to rent if they can't get a mortgage and wait until they can get a mortgage. This situation is as disgustingly amoral as taking money from savers in Cyprus.

Click to rate     Rating   2

"Lenders expect rates to be slashed even further over the next three months, as demand increases for both prime lending and buy-to-let lending." ------ Increased demand for the available money usually results in an increase in rates. More demand for scarce resources pushes up the price, so what's this about? Rates might be made artificially lower than they already are - relatively very low - but if inflation rises steeply due the quantitative easing (printing of money), interests rate will soar to stop it doing so and if you can't pay your mortgage, the property gets repossessed, so take great care. Only buy if you can afford the interest rate to double or go even higher.

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This is EXACTLY the same as what the Cypriots have done, just off future investment earnings !

Click to rate     Rating   3

The thing is, you can lead a horse to acid, but if just won't be daft enough to drink.

Job security is going to be in negative territory for ever more, Western world wages are going to slide into the long term, the cost of running a house is going to continue to rise and rise, and the cost of credit is inevitably going to increase considerably long before any loan comes to term. I don't see how UK housing (which has been prevented from finding it's true market value, unlike in the recovery stories of Ireland and the USA) can do anything other than experience a drawn out groaning long term crash, short term government inflated election bubble or not.

Click to rate     Rating   50

"The way things are going with BoE rates at 0.5% and the government giving a 20% subsidy, it's a wonder that banks are not paying buyers to take on mortgages." - Richard , Torrevieja, 03/4/2013 17:26 Don't worry, some bright spark will come up with it soon enough!!!

Click to rate     Rating   2

Paid for with savers loss of interest.

Click to rate     Rating   11

Savers will be out to give the government a good kicking at the next election ... mind you so will pensioners, students, public sector workers, people on benefits and a whole load of other people.

Click to rate     Rating   13

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