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Mortgage choice surges as lenders see growing borrowing demand

The number of mortgage products available has reached the highest level since last spring. With lenders offering competitive deals, interest rates have fallen month-on-month.

As the UK housing market remains strong, house prices have continued to rise. At the same time, mortgage deals have increased to its highest level since the start of the COVID-19 pandemic, according to data from Moneyfacts.

Recent mortgage lending statistics from the Bank of England also reveals lenders advanced £83.3bn of mortgage borrowing in the first quarter of 2021. This is the highest level since Q4 2007. Additionally, the value of mortgage commitments, which is lending that will advance in the coming months, was 15% higher year-on-year at £77.5bn.

Eleanor Williams, finance expert at Moneyfacts, comments: “Homeowners’ aspirations to acquire larger living space and to make the stamp duty holiday deadline has pushed up UK house prices and while the demand for a dwindling supply of property continues to increase, there has been a notable surge in mortgage borrowing.”

Lenders gaining further confidence

Lenders are continuing to gain more confidence as borrowing has increased in demand. At the same time, mortgage options have been on the rise, providing more choice for property buyers.

On 1 June 2021, 4,243 mortgages were available, according to Moneyfacts. This is a rise from 3,927 deals on 1 May. Year-on-year the number of mortgage deals has increased by 1,433 when 2,810 products were available on 1 June 2020.

Mortgage availability improved in a number of loan-to-value (LTV) ratios. In particular, a substantial amount of new mortgages coming to the market are for first-time buyers with 5% and 10% deposits.

“Lenders are reacting by improving product choice, with 316 more products now on offer compared to last month, seeing overall mortgage availability top 4,000 products for the first time since the pandemic’s impact began over a year ago,” Eleanor Williams says.

“While improvements in availability were recorded across the majority of the LTV tiers, it was at 95% LTV that nearly a quarter of the new deals were launched.”

Competitive mortgage rates

With an increase in mortgage options, lenders are providing competitive rates. In the past month, 33 new two-year fixed rate mortgages at 95% LTV were launched. The average fixed rate for these products dropped by a significant 0.14% to 3.88%. This is the lowest the rate has been since June 2020, when it fell to 3.28% with only 31 deals available at the time.

For five-year fixed mortgages with 5% deposits, 27 additional products launched in the last month. The average rate also saw a drop of 0.15% to sit at 4.07%. Both of these average rates are 0.63% and 0.40% above those seen in June 2019. However, these rates are still at relatively low levels.

Lower-risk borrowers with high levels of equity can secure particularly low interest rates. The lowest two-year fixed deal at 60% LTV, meaning a 40% deposit is needed, is only 0.95%. It’s too early to tell if these particularly competitive rates will extend to higher LTV deals, according to Moneyfacts. It will likely depend on how the economy fares during the second half of the year.

Eleanor Williams concludes: “Those looking to secure a new mortgage deal may find it invaluable to seek advice, not just to establish what the best product for their circumstances would be, but also to ensure they get guidance on affordability and eligibility criteria while these remain fluid.”

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