Headlines crying the end of the Credit Crunch are putting forward a rather misleading image of the late 2008 Mortgage Market. On the promising side, it is true to say that rates have been cut by some of the leading banks and building societies. However there are two underlying facts that are not so readily put forward. Firstly, rates may be approaching their pre- Credit Crunch levels (they still have a long way to go though) but no-one ever mentions that the bank base rate was 5.75% in August 2007, whilst it is only 5% now. By rights, mortgage rates should be three quarters of a percent lower than before the Sub Prime Crisis before we take to the streets for a show of national celebration.
Secondly, and more importantly to myself, the banks are being extremely cautious in regard to which deals they are cutting. In reality it is only the sub 60% LTV mortgages which are being cut. LTV stands for "loan to value", and it is a measure of how much deposit you are putting d own on a purchase, or how much equity you have when you remortgage. In my experience most purchases take place at the 80-100% LTV level and most remortgages take place at the 50-80% LTV level (those with LTV's under 50% tend to stay with their current lender until their mortgage is finished). Therefore in reality, what looks like good news on the surface is simply a bit of headline grabbing.
It's a bit like Tesco pushing the prices up on Milk and Bread and then making a huge song and dance when it cuts the price on Prunes or some such long-forgotten item.
In my opinion the mortgage market will remain flat until such time as either a) 95% mortgage rates come to under 6% (I got a 125% mortgage with Northern Rock at 5.79 in 2006), or b) more banks and buildings societies begin to accept "Vendor Gifted deposit".
Otherwise there is nothing really to shout about. Those stating that mortgage rates are back to pre- Credit Crunch levels are simply talking cobblers. In February this year I could have taken a 3 year fixed Buy to let mo rtgage with BM Solutions at 4.99% or a 90%LTV 3 year tracker with the Halifax at 5.59%. Today these deals are available respectively at 5.89% and 6.34%. Where on Earth is that pre- Credit Crunch levels?
Once again - ignore the papers and find out the facts before making your financial decisions.
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Ross Taylor is the author of "Mortgages, Money and Magic" and "The No B.S. Credit Crunch Ready Guide to Buy to Let in 2008". Ross is a successful Financial Adviser specialising in First Time Buyers and Buy to Let. He owns over £2million worth of property in the UK and regularly gives lectures on Financial Planning.
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