Falling Mortgage Rates Signal Lenders’ “Low Risk” Strategies

Low-rate mortgages saw another product join their ranks as Halifax introduced the UK’s lowest two-year fixed rate at 0.83 percent for large deposit holders.

The Halifax product is only available to borrowers with a 40% deposit on loans up to £ 1million, eliminating riskier smaller deposit holders.

It also unveiled a record five-year fixed rate of 0.98% for large deposit holders last week.

Rather than fueling the ongoing “rate war”, brokers say the record cuts are a sign of lenders’ persistent appetite for low-risk business.

“What this really tells us is not that lenders want a rate war, but rather that lenders are as eager as the mustard to have very low risk business on their books,” Lewis explained. Shaw, founder of Shaw Financial Services.

Shaw believes that the drop in rates on low-value mortgages is the result of the government program launched earlier this year to boost lending by 95%, which he said lenders “hands down.” [were] forced into “.

Launched in April, the program focused on lenders such as Lloyds – the parent company of Halifax, Santander, Barclays, HSBC, NatWest and Virgin Money.

The government’s mortgage guarantee program secures part of the high-risk mortgage, but Shaw’s point implied that such efforts to minimize the risk of lender default did not go far enough.

Specialist lenders, meanwhile, praised the government program for balancing the volume of mortgage applications from first-time buyers and other small deposit holders.

“The government program has dampened demand from small lenders,” Stuart Miller, director of clientele for the Newcastle Building Society, told FTAdviser in June.

The diversion of high-risk activities to larger lenders has prompted reports of discrimination against some mortgage applicants.

Some lenders, for example, refuse to accept independent borrowers who have taken out Covid grants.

The latest data from Mortgage Broker Tools shows that the average maximum loan size available to an independent applicant in July was £ 221,000 – down more than 5% from June and the lowest level since February.

But if lenders’ lowest interest rate offers seem appealing to those who meet the criteria, they come at a price.

“Halifax is pretty much the only lender that still charges a basic appraisal, which means that for many people the cheapest offer is often elsewhere,” said CEO Rhys Schofield Peak Mortgages and Protection .

“As always, these headlines often come with significant setup costs.”

Schofield believes the latest mortgage launch in Halifax will lead to further cuts. “Where the UK’s biggest mortgage lender goes, others will surely follow.”

But others anticipate a rate hike soon. “These rates are unlikely to be around for long and there isn’t much room for them to drop, so it’s definitely worth considering setting your rate for a longer period,” said Robert Payne, Director of Langley House Mortgage.

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