Mortgage market heats up as lenders battle for borrowers
When Kaysha Chappell started house hunting this year, she didn’t expect to find herself at the centre of a shifting mortgage landscape.
New mortgage products have changed how much some lenders are prepared to offer home buyers and she secured a mortgage that was almost five times her annual income with April Mortgages through the Mortgage Advice Bureau.
The higher-than-expected offer changed everything. “Originally I did get a lower decision in principle,” she explains. “But then my mortgage adviser found a unique lender, so I managed to get just over £20,000 more with them.”
That extra borrowing opened doors. After six years of saving for a deposit, the 27-year-old from Thorne in Bradford, had an offer accepted on a three bedroom, mid-terrace. “It’s been a long process, saving everything I can,” she says.
“The property was on sale for £125,000, but I managed to get it for £118,000.
"It’s made a major difference. It opened up more options and I’ve been able to get a house with an extra bedroom.”
Kaysha’s story mirrors a broader trend this autumn as lenders compete more aggressively for borrowers and regulators loosen some affordability rules.
Across the UK, banks including Lloyds, Halifax, Nationwide, HSBC and The Mortgage Works have announced rate cuts or policy shifts, allowing customers to borrow more relative to income.
According to Moneyfactscompare.co.uk, average mortgage rates dipped back below five per cent in November after sitting above that threshold for much of the past year.
At the same time, the Financial Conduct Authority (FCA) has introduced changes enabling lenders to extend larger loans.
Chief executive Nikhil Rathi said lenders can now lend around £30,000 more to the average borrower under the revised rules, calling it “a risk worth taking.”
He added: “We judged this a risk worth taking, allowing more people the security that comes with home ownership.”
With the Bank of England choosing to hold interest rates at four per cent in a tight vote this month, lenders are positioning themselves for what comes next.
Lloyds and Halifax have launched new rates on selected products: Lloyds’ two-year fixed for Club Lloyds customers starts at 3.77 per cent with a 40 per cent deposit, while Halifax’s three-year fix is 3.92 per cent, both with £999 fees.
Nationwide has trimmed rates by up to 0.25 points, offering a two-year fixed home-mover deal at 3.64 per cent for borrowers with a 40 per cent deposit. Its buy-to-let arm, The Mortgage Works, has also cut some rates by up to 0.30 points.
These changes amount to what some brokers are calling a “mini rate war.” Andrew Milnes, head of the Mortgage Advice Bureau in Bingley, says: “It’s easy to see we are approaching year end and some lenders still have targets to hit.
"We have a few five-year deals (at 60 per cent loan-to-value or under) sub 3.75 per cent now which is encouraging… but that may well change as the markets could have been pricing in a cut following the encouraging inflation figures.”
For first-time buyers, the impact of new lending rules is tangible. HSBC UK recently said it would allow Premier customers - those earning at least £100,000 or holding the same in savings - to borrow up to 6.5 times income.
Smaller lenders such as April Mortgages are also stretching multiples for selected borrowers.
Since the 2008 financial crisis, regulators have restricted high-income multiples to limit household debt. Now, amid falling inflation and sluggish housing transactions, the FCA appears open to modest flexibility.
Critics warn, however, that easier credit must come with better financial education. Mr Rathi says the regulator’s focus is on strengthening “financial capability” to ensure borrowers can manage future rate rises.
He says: “We now need to connect financial inclusion and capability. Improved inclusion should be the goal, but capability needs to be enhanced at the same time, and potentially more quickly.”
He adds that government, banks, schools and industry all have roles to play in helping people make informed financial decisions.
For now, competition among lenders is giving borrowers small wins – slightly cheaper rates and, in cases like Kaysha’s, the ability to buy a bigger home.
But with swap rates volatile and the Bank of England’s base rate still at a 16-year high, experts warn against assuming the good news will last.
Kaysha, meanwhile, is simply waiting to get her keys. “I’m at that stage now of waiting for the solicitor contract,” she says.