Mortgage blog: Lenders cut rates – but you may still need a big deposit


Friday 19th October 2012

If you're looking for a new mortgage, your cost of borrowing may have just reduced. A number of the UK's major lenders have cut their mortgage rates in the last few days as the Funding for Lending scheme begins to filter through to borrowers. However, many of the best deals are still only available to you if you have a 20% or 30% deposit.

Ten UK lenders cut mortgage rates

A number of the UK's leading lenders have cut their mortgage rates in the past few days. ING Direct - recently acquired by Barclays - has cut the rates on its two-year and five-year fixed-rate deals by up to 0.75%. And the Nationwide building society has cut all its rates, including reducing its two-year fixed rate deal with a 30% deposit to 3.09% from 3.49%.

Overall, ten lenders have announced rate cuts in the last week. Also among them were HSBC, which has cut some fixed-rate deals by between 0.2% and 0.5%, and Tesco Bank which has cut some deals by between 0.2% and 0.4%. Mortgage experts say that the cuts are as a result of the Bank of England's new Funding for Lending scheme, which aims to both boost and lower the cost of borrowing. £60billion is available for banks to borrow in the first phase of the scheme, which began on 1st August.

Keith Osborne from says: "Since the Funding for Lending scheme was announced, the cost of borrowing to banks has fallen sharply. This is allowing lenders to offer lower mortgage rates."

The BBC reports that "one aim of the Bank of England's scheme is to encourage lenders to offer more mortgages to people with relatively small deposits, of 10% or even 5%, rather than to just to those who can put down a deposit of 20% or more".

However, Osborne is unconvinced that the scheme is helping these borrowers. He adds: "Most of the cuts are to products with a maximum loan to value of 70% or 80%. So if you are looking to buy with a small deposit, you're not really seeing any benefit in these rate cuts."

Accord Mortgages, part of Yorkshire Building Society, has recently launched eight new products at 90% lending. According to FT Advisor, the lender says it is "supporting customers at a time when other providers are focusing on clients with bigger deposits".

Osborne adds: "While it's great to see a lender offering higher loan to value deals, these products are simply not competitive when compared to deals at 75% or 80% lending. The cheapest deal is a two-year fixed rate at 4.99% with a £995 which compares unfavourably to deals at a lower loan to value."

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