Since the last cycle of rate rises mortgage features have evolved to benefit borrowers. Most lenders now offer portability – a significant benefit in long-term borrowing – and arrangement fees represent better value over longer terms.
Also, overpayment facilities allow those expecting their income to rise later in the period to reduce their debt.
For most lenders, finding funding is now the top challenge, followed by meeting the demand for higher LTVs. Not only could a mortgage at 95% LTV be in excess of 100% LTV in less than a year if property values continue to fall at the present rate, the capital ratios lenders are required to stockpile above 75% LTV wipe out much of the available cash.
However, five-year fixes of 4.89% have been inching their way onto best buy tables. There are whisperings of a recovery in the next two years which would allow some lenders to take the view that more of the five-year life of a tranche will be spent in a rising property value climate than a falling one, thus reducing risk.
But it is the low cost of five-year swaps at around 3% that makes pricing more palatable. Offering products at 4.89% with an arrangement fee of 1% of the average loan size gives a solid five-year margin of around 2%.