"This increase in rates is likely in part due to proportion of a rate that a provider needs to attribute to the risk of default, which may be a concern as a result of the economic outlook remaining so unclear."
Its data shows that product availability has continued to decline for the fourth consecutive month. At 2,259, this represents a fall of 153 products since the start of September and is the lowest product count on Moneyfacts records since May 2010, when 2,087 deals were available. Compared to October 2019, when 4,955 products were offered, this represents a 54% contraction in the market year-on-year.
The 85% LTV tier is one of the only two tiers where the number of products available is currently higher than it was in May 2020 – perhaps due to the fact that 85% LTV is currently the maximum many providers are lending up to.
The average two-year fixed rate for all LTVs has increased by a further 0.14% this month, while the equivalent five-year fixed rate has increased by 0.13%.
Eleanor Williams, finance expert at Moneyfacts, said: “As house prices continue to rise and mortgage approvals hit their highest level in over a decade, both likely boosted by the release of pent-up demand following the easing of lockdown and also those hoping to capitalise on the stamp duty land tax holiday, borrowers who have yet to take on a new mortgage deal may be disappointed to see that product availability has fallen for the fourth consecutive month. At 2,259, this is 153 less than at the start of last month and 551 less than in June, when it seemed the sector was starting to recover from the previous few months of initial shock.
“It is interesting to note that contributing to this decline in the overall number of mortgages available, all LTV tiers bar two have seen product numbers fall below levels seen in May 2020, which followed significant mass withdrawals as the impact of the pandemic and subsequent lockdown were felt across the mortgage market. That it is the 85% and 100% LTV tiers which now offer more deals than they did in May could be explained by the fact that 85% is now the maximum LTV offered by many providers, and at 100% LTV the products offered are almost exclusively guarantor or family assist deals, which some first-time buyers may now be considering due to the lack of standard mortgage products for those with smaller deposits.
“This month sees the overall average rates increase for the third month in a row – the average two-year fixed rate for all LTVs has increased by 0.14%, while the five-year equivalent rose by 0.13%. Although not as steep as the month-on-month increases of last month, this has resulted in the average rates moving further from the record lows of July 2020, and they are now just 0.05% and 0.12% lower respectively than in March 2020, prior to the onset of the pandemic.
“This increase in rates is likely in part due to proportion of a rate that a provider needs to attribute to the risk of default, which may be a concern as a result of the economic outlook remaining so unclear. For example, the spectre of negative equity should house prices drop from their current levels is one that responsible lenders will be keen to mitigate, yet have no control over. Similarly, uncertainty around future employment levels and income as Government support schemes begin to unwind is another factor lenders may be considering."
