Moneyfacts: Product choice drops after marginal recovery in June

Moneyfacts UK Mortgage Trends Treasury Report data has revealed that after a slight recovery in June, product choice in the mortgage market has dropped again.

There were 82 fewer deals available at the start of July, compared to the beginning of June.

Hardest hit has been the highest loan-to-value (LTV) tiers.

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July started with only 16 2-year fixed and 26 5-year fixed products available at 90% LTV, this dropped to one and five products, respectively, at 95% LTV.

After hitting record lows in June, both 2 and 5-year fixed rate averages reduced even further, to 1.99% and 2.25% respectively.

This is the lowest since Moneyfacts’ records began in 2007.

In the higher LTV tiers, however, the 2-year fixed average rate at 90% LTV increased by 0.60% month-on-month to 2.90%, and by 0.66% to 3.94% at 95% LTV.

Eleanor Williams, finance expert at Moneyfacts, said: “There was welcome news for homebuyers last week, with measures announced by the Chancellor intending to boost economic activity and growth including the touted ‘stamp duty holiday’, which has increased the threshold at which this tax becomes due on purchases of property worth over £500,000.

“A recent survey by [the Royal Institution of Chartered Surveyors (RICS)] indicated that despite the number of new properties being listed on the market rising in June, the supply of available property for sale remained close to its record low, with on average just 39 per branch available.

“As the housing market is a crucial component of the British economy, the fact that homebuyers looking at purchasing a property worth approximately £250,000 could now save on outgoings in the region of £2,500 with the change to stamp duty, will hopefully encourage more to move forwards with their transactions.

“However, our research shows that there still remains a dearth of available products.

“After a minor rally last month, July saw overall product choice fall again, starting the month with 2,728 products on offer.

“March began with 779 products available at 90% LTV, which had dropped by 91% to 70 products on offer at the start of July – a record low based on our Treasury report data, beating the previous low of 71 products in May 2009.

“At 95% LTV, there is a similar story with only 14 products on offer, which is close to the record low for products in this sector (three products in May 2009).

“The majority of the available products at this level now are specialist options.

“This includes guarantor and family assist mortgages, such as the Barclays Springboard mortgage, and those open only to applications from selected professions or from those in specific lending areas, with products such as those offered by Furness Building Society that reflect its principles as a mutual to continue to support those in their local area.

“This information could be disappointing to many would-be borrowers who may not have someone to guarantee, do not work in the specified job roles, or do not reside in the relevant postcodes, especially considering that while savings rates continue to plummet, increasing their level of deposit is likely to more be difficult.

“However, it bears noting that lenders have been launching products in the high LTV sectors, particularly at 90%, and over the course of a month the numbers of available deals can fluctuate enormously.

“It seems that while lenders have the appetite to lend, intense customer demand being levelled at the small number of providers who have relaunched in these tiers is overwhelming, at a time when operational capacity is already stretched and there continues to be existing customers requiring support with payment difficulties in addition to new business underwriting.

“Therefore, until more lenders return to this space with products to support the clear borrower demand, it seems likely that we will continue to see an ebb and flow in availability.

“June’s record low average rates have dropped even further this month, seeing the overall average 2-year fixed reduce to 1.99% and a slight fall on the 5-year average to 2.25%.

“When we consider that at 90% and 95% LTV the 2-year fixed rate average has increased by 0.60% and 0.66% respectively and, despite the 5-year average at 95% making a small reduction of 0.02%, the 5-year at 90% has also increased by 0.59%, this makes the reduction to the overall average rates even more significant.

“This is likely due to the fact that the low to mid-LTV tiers have seen rate reductions over this same period, indicating increasing rate disparity between high and low LTVs.

“We are left with a very mixed picture for potential new mortgage customers.

“Those with higher levels of deposit or equity are seeing continued reductions in the average rates available and the prospect of saving potentially thousands on stamp duty will be a fantastic incentive to progress any home moves.

“However, for those with only 5% or 10% deposit or equity, the outlook remains bleak.

“For the stamp duty holiday to succeed in encouraging more prospective borrowers to take that next step on the property ladder, the demand for products, especially in the high LTV tiers where most of the fluctuations in availability are focused, needs to be met.”