If you need to remortgage, your best tactic may be to get the best variable-rate, no-penalty deal you can, and hope to find a better deal later.
This is because the mortgage market is currently in the deep freeze, and only government action can bring it back to life. Therefore, borrowers need to assume that this will happen next year, and make short-term tactical decisions.
In the Pre Budget Report, Chancellor Alistair Darling said the government was working on a mortgage rescue plan along the lines recommended in a report by Sir James Crosby. That wasn’t quite true.
There's a battle going on
In fact, there’s a battle going on between the Treasury, which wants a stand-alone scheme along the lines set out by Crosby, and the Bank of England, which hates the idea of the government guaranteeing mortgages but would prefer to be in charge of any scheme that is implemented.
Given that a Bank solution could be fudged as not costing any more – because it could be absorbed in the Bank’s existing Special Liquidity Scheme – whereas a stand-alone Treasury guarantee would be seen as costing taxpayers real money, the Bank of England may win this one.
But time is of the essence. Darling appeared to suggest that the scheme wouldn’t be launched until Spring. Mortgage lenders have made it clear they can’t wait that long.
See our best buy fixed rate mortgages
Going from bad to worse
The figures are dire. The number of mortgage offers actually available to borrowers continues to shrink. There are now under 70 mortgages available to people with a 10% deposit to put down for house purchase.
Lenders with decent offers, such as Nationwide and HSBC, have had to ration mortgages because they are overwhelmed by demand. Nationwide has taken the unprecedented step of denying existing or new borrowers the opportunity to take out a new mortgage on its admittedly very competitive SVR. October’s total net mortgage lending was 60% lower than in the same month last year.
As far as variable rate mortgages are concerned, it’s not the rates that are the problem – they have come down to what are, by historic standards, low and affordable levels - but availability. At 75% LTV, rates of around 5% are available from several mainstream lenders. But for LTVs of 85%, the offers are few and more expensive.
For fixed rate mortgages, the position is odd. ‘Swap’ rates have continued their steady downward drift we predicted several weeks ago. 3- and 5-year swap rates are now 3.3% and 3.5% respectively. Yet it’s hard to find a 5-year fixed rate deal at under 5.25%.
With another Base Rate cut likely next week, borrowers should expect both fixed and variable rates to drop further - though lenders probably won’t pass on the full value of the cut. But until we get the government’s mortgage rescue package, the market’s going to remain frozen.
So as we mentioned at the start, if you need to remortgage, then your best tactic may be to get the best variable-rate, no-penalty deal, and hope to find a better deal later.
See our best buy fixed rate mortgages
