Mortgage rates are at historic lows, but how easy is it to get one?

Product choice for borrowers with smaller deposits has plummeted for both two and five-year fixed rates

Average mortgage rates have hit record lows since the Bank of England cut base rate in March, but the choice for first-time buyers has fallen dramatically.

Figures from Moneyfacts show that the average overall two-year fixed mortgage is now 2.09%.

Meanwhile the typical rate for five-year fixed mortgages across all loan-to-values (LTVs) has reached a new low of 2.35%.

The Bank cut base rate twice in March to help reduce the impact of the coronavirus pandemic on the economy.

On 11 March the Bank cut the base rate from 0.75% to 0.25%, then followed this with a second cut on 19 March to a record low of 0.1%.

 Source: Moneyfacts Treasury Reports. Data correct as of 1 May

Number of deals

The coronavirus pandemic has had a huge impact on the number of mortgage deals available.

Moneyfacts says the number of available products has more than halved when compared to the beginning of March, falling from 5,222 deals available to just 2,566 at the start of May.

This is partly because lenders have had to spend extra time handling existing customers and managing the volume of mortgage payment holiday requests. It is also because lenders panicked and began to pull many deals from sale in an attempt to cut the risk of buyers defaulting on loans.

Lockdown restrictions on viewing properties have also delayed house purchases. Social distancing measures have hit the ability of surveyors to carry out valuations and for estate agents and potential buyers to view properties.

Nicholas Morrey, product technical manager at mortgage broker John Charcol, says now the Government has relaxed its restrictions on buying a property we should see the mortgage market begin to return to normal.

He says: “Lenders I have spoken to are planning on bringing back products they withdrew.

“It will be easier for people to get mortgages in the coming weeks and we should see a return to normal within a month.

“It may take a little longer for 90 to 95% LTV products though as lenders need to get through a backlog of around 60,000 valuations.”

First-time buyers

While the fall in mortgage rates is good news for borrowers, the choice for first-time buyers has reduced dramatically.

The downturn in the economy means banks and building societies are less likely to lend to this group as they are seen as riskier.

The number of products for borrowers with a 10% deposit has dropped by 270 and 243 for two and five-year fixed rate options respectively.

For those with a 5% deposit the number of two-year deals has dropped by 126, while the number of five-year deals has fallen by 131 respectively. This leaves just 22 two-year or five-year fixed rate deals available to new borrowers.

Eleanor Williams, finance expert at Moneyfacts, says: “First-time buyers are therefore likely to feel the effect of the current circumstances even more keenly than most. These borrowers are more likely to be looking for a low-deposit mortgage product, which as a sector of the market has contracted significantly."

Remortgaging

Rates for those looking to remortgage have tumbled in the past two months.

For borrowers looking to remortgage with a 25% deposit, rates on the average two-year fixed rate deals has fallen by 0.32 percentage points to 1.97%, while the typical five-year deal has dropped by 0.36 percentage points to 2.20%.