Many building societies and banks have slashed the interest rates they charge on their mortgage deals with borrowers now able to get a two year fixed mortgage deal for less than 2%. However, many consumer advocacy groups are stating that this is actually a ‘phoney’ price war because most home buyers will not be able to afford the excellent rates advertised.
At the same time that great deals of rates have tumbled downwards, the fees that lenders charge in order to take out any of these deals have greatly spiralled. Therefore, some home owners are saying more in pence and pounds even though they have secured their mortgages via the banks that are offering these ‘great’ deals.
Banks are offering these dirt cheap mortgage deals because they can now secure cheaper funding as part of the Bank of England ‘Funding for Lending’ scheme. This scheme was designed to encourage banks to offer more money to SMEs and mortgage customers while also loosening the credit restrictions that come with them.
According to critics the scheme only benefits those that already have a reasonable amount of equity in their homes and have never had any problems getting finance. On the other hand, first time home buyers who are really the ones that need the help are not benefiting at all and are still having problems finding a home loan that is affordable.
For instance, Chelsea Building Society has a two year mortgage sitting at 1.74% and Yorkshire Building offers a two year fixed mortgage at 1.79%. The problem is that they come with high upfront fees of £1,825 and £1,345 respectively and buyers must be able to afford a high LTV. Therefore, only those who already have equity will be able to take advantage of them, while others will find themselves in the same situation.