Average mortgage rates have fallen notably in the last two months, but so has the number of available products – especially for first time buyers.
According to Moneyfacts, the average two year fixed rate deal fell from 6.90% on August 10 to 6.32% today, while two year trackers dropped 0.3% to 6.28%.
And while this will come as a welcome boost to homeowners, who have seen rates rise dramatically in the last year, it will be tempered by the fact that the pool of mortgage products continues to dry up.
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Lower rates, higher LTVs
In the summer of 2007, customers could choose from around 13,000 different mortgage deals, but as the credit crunch wreaked havoc on the market, lenders began pulling many of their products from the market.
By August this year, there were just 3,748 available, and it has since shrunk a further 13% to 3,281. While a smaller pool of products is obviously bad news far all homeowners, it has been particularly detrimental to first time buyers (FTBs) and those who own a small chunk of equity in their home.
This is because risk-averse lenders are becoming increasingly wary of taking on these high risk customers, and are demanding ever larger deposits to qualify for their deals.
According to figures from Moneyfacts, the number of deals with a 95% loan to value (LTV) has fallen from 85 two months ago to 53 today, while 90% LTV deals dropped from 474 to 337.
Conversely, the number of mortgages with a 60% LTV nearly doubled in the same period, from 84 to 155.
| 10 August 2008 | 10 October 2008 |
| Total number of products | 3,748 | 3,281 |
| Average 2-year fixed | 6.90% | 6.32% |
| Average 2-year tracker | 6.58% | 6.28% |
| Number of max 95% LTV | 85 | 53 |
| Number of max 90% LTV | 474 | 337 |
| Number of max 75% LTV | 557 | 459 |
| Number of max 60% LTV | 84 | 155 |
| Average max LTV | 80% | 78% |
| 2 year fixed average fee | £964 | £1,149 |
| 2 year tracker average fee | £1,063 | £1,134 |
Source: Moneyfacts.co.uk 10.10.08
FTBs should sit tight
So while homeowners with a sizeable chunk of equity in their property are benefiting from lower rates and higher choice, the opposite is true for newcomers to the housing market.
Francis Ghiloni, marketing and business development director at online mortgage site mform.co.uk, says the best advice for FTBs is to simply sit tight and save what they can.
"First-time buyers should be benefiting as house prices fall but unfortunately they are unlikely to be able to benefit as very few have around £15,000 for a deposit,” says Ghiloni.
"It's easy to see why so few have bought in the last six months. There's little availability when it comes to generous LTV ratios and the few lenders still offering above 90% tend to charge a little extra to cover the cost of the increased risk of loss in the event of a forced sale.
“The advice to FTBs remains to sit tight and build your deposit, this way when you do apply for a mortgage you're more likely to avoid the hefty fees which push up the true cost of these mortgages.”
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