The shelf life of a mortgage deal is at its shortest on record as super-low interest products ‘sell out’ in record time.
The typical mortgage is now available for just 21 days before being re-priced, according to data from Moneyfacts.
This is the lowest it has ever been, matching the previous all-time low in May 2017 – and a drop of nine days in the last month alone.
Flash sale: Mortgage products are only around for three weeks before they are re-priced
These flash-in-the-pan deals are being fuelled by the rate war where lenders are courting low-risk customers by offering loans with ever-cheaper interest to borrowers with large deposits.
Halifax’s 0.83 per cent rate on a two-year fix is the current lowest, though it comes with a £1,499 fee and is only available to those with 40 per cent to put down up front.
Other super-low deals include an 0.87 per cent rate with £1,119 fee, also from Halifax, an 0.89 per cent rate with £999 fee with HSBC, and a 0.94 per cent rate with £749 fee from NatWest.
Choosing a slightly higher rate with a lower fee can often be even cheaper, especially for those with smaller mortgages.
Rosie Fish, mortgage expert at broker Habito, said: ‘The lowest deals out there (sub 1 per cent) don’t tend to last long, as they effectively ‘sell out’ once the lender’s allocated funds for this deal is effectively ‘used up’.
Fish adds that applying for one of these super-low interest deals could also result in delays, as the staff who process applications are ‘overwhelmed with demand’.
It can take more than twice as long to get to the mortgage offer stage, she says, which may be an issue for those with tight completion deadlines.
When is the interest rate locked in? Terms CAN change during the mortgage process
Being quoted a certain rate by a broker or lender is not a guarantee.
If the deal you originally had your eye on is discontinued while you are in the process of applying, it could be taken away from you – depending on how far you have progressed.
We asked Rosie Fish, mortgage expert at Habito, to explain. She said:
‘Any mortgage quote is only valid that same day, and is only secured when a full mortgage application is submitted to a lender.
‘For purchases, this means homebuyers would need to have had an offer accepted and have chosen their solicitors.
‘And, for both purchase and remortgage cases, the lender or broker will need to have seen the customer’s documents – their proof of ID, address, income and bank statements – before their application can be submitted and rate secured.
‘This rate is also subject to credit search. So having your ducks in a row when it comes to your paperwork is very important, if the intention is to move quickly with your application.
‘Your mortgage rate is only ‘reserved’ once a full application has gone to the lender, regardless of whether that rate is then changed later on.
‘From there it can take 2-6 weeks to get an offer and this is then valid for 3-6 months, depending on the lender.’
While lenders can change rates until they receive a customer’s full application, home buyers are free to shop around for different mortgage deals until they complete on their home.
‘Lenders are having to reduce rates quickly and consistently in order to keep up with competition, which meaning that products don’t last long,’ says Matt Coulson, founder and director at mortgage broker Heron Capital.
‘That said, accepting one rate doesn’t necessarily mean you are committed to it – you can shop around until completion.’
However, he suggests getting professional advice before jumping between deals.
If they spot a better rate elsewhere, borrowers should also be sure that it is suitable for their circumstances and that they are likely to be accepted before cancelling an application and re-applying elsewhere.
Mark Harris, chief executive of mortgage broker SPF Private Clients, says: ‘There is no guarantee the borrower will fit the lending policy of the new lender.
‘Additionally, they should consider the additional costs and potential time delays, including the potential that the new lender require a new set of documents and credit score.’
Mortgage supply nearly back to pre-pandemic levels
While individual deals aren’t hanging around for long, the number of mortgages available is continuing to rise, and is now nearly back up to pre-pandemic levels according to the Moneyfacts research.
The overall figure rose for the tenth consecutive month in August and there are more than 4,600 mortgage deals available, which is 93 per cent of what was on offer before the pandemic.
In particular, the number of products for those with small deposits is increasing after these were largely pulled from the market in the early days of the pandemic.
‘Choice continues to improve in the [lower deposit] tiers, with growth at 90 per cent and 95 per cent loan-to-value increasing by a further 25 and 22 deals this past month alone,’ says Eleanor Williams, finance expert at Moneyfacts.
Last-minute swap: Experts say buyers can pull out of mortgage deals at any point before completion if they spot a better rate- but they should do so with caution
This, she says, has been fuelled by the introduction of the Government’s Mortgage Guarantee Scheme – although there is still some way to go before lower-deposit mortgages are back at pre-pandemic levels.
There are almost 200 fewer 10 per cent deposit deals, and 116 fewer 5 per cent deals, than there were in August 2019.
While rates are trending downwards for those with deposits of all sizes, though there is still a gulf between the rates being offered to those with large deposits and those with smaller ones.
A borrower with 40 per cent to put down up front can access an average rate of 1.55 per cent on a two-year fix, compared with 3.69 per cent for those with 5 per cent deposits, for example.
For five-year fixes this increases to 1.79 per cent and 3.93 per cent – meaning that in both cases the borrower with the smaller deposit would pay more than double the interest on the same property.
Forty per cent deposit holders are paying 0.30 per cent less interest than before the pandemic on average, as in August 2019 the typical two-year fix had a rate of 1.86 per cent.
However, those with 5 per cent deposits are paying 0.45 per cent more compared to the August 2019 rate of 3.24 per cent.
They might have less time to decide – but buyers are locking in for longer to keep up with price rises
While buyers may have less time to decide on their next mortgage thanks to the limited availability of deals, they are increasingly committing to them for longer.
According to new data from wealth management firm Quilter, the number of mortgages agreed with terms of more than 35 years increased sharply at the beginning of this year. The typical mortgage is taken on a 25-year term.
In March of this year, it found that 25,112 mortgages were sold with a term of 35-plus years, a 70 per cent increase compared with 14,765 in March 2019.
In March 2018 14,683 such mortgages were sold, and the figure has not surpassed 20,000 since 2015.
The data was obtained from the Financial Conduct Authority via a Freedom of Information request.
Quilter said the frenzied housing market over the past year had contributed to the trend of taking out mortgages on longer terms, as house prices increased faster than incomes.
While they would pay substantially more in interest in the long-term on a 35-year deal, it would make each monthly payment lower.
Charlotte Nixon, mortgage expert at Quilter said: ‘The savings made with the removal of stamp duty, as well as lockdown-driven ‘accidental’ savings, may have allowed buyers to purchase higher cost homes than they would have expected.
‘Ultimately, this rush to buy has pushed house prices up significantly across the country and may have contributed to the upswing in buyers opting for longer term deals.
‘For some borrowers, particularly first-time buyers, securing a mortgage with a 35-plus year term could be the only way to afford a property due to the lower monthly repayments.’
Those taking out longer-term mortgages are being warned about the possible risks of doing so – the biggest of which is that they could reach retirement and still be making repayments.
Mark Harris, chief executive of mortgage broker SPF Private Clients, says: ‘Longer terms mean lower monthly payments, but there is a larger overall cost as you will be making many more of them.
‘If you take out a mortgage over the longer term, lenders will check the affordability over that period of time. Borrowers should also consider whether their income will be the same later in life, and if a longer mortgage term is going to be feasible.
There is the option to shorten the term at a later date with a remortgage, or to make regular over-payments to reduce the term.
However, borrowers should check whether their mortgage has any limits on how much they can overpay.
‘We have lots of clients regularly making overpayments to their mortgages. There are plenty of online calculators which can indicate how doing so will impact your mortgage cost and term,’ says Coulson.
‘However, many lenders have a limit on the number of overpayments that can be made in a product lifecycle, so it’s worth being mindful of any restrictions.’