The recent crisis in the Eurozone has produced a surprise side effect for UK residential mortgages as lenders have cut fixed rate mortgages to new lows, first time buyers though and those with low deposits are still finding it hard to get a mortgage.

Reduced Fixed Rates

Many lenders, including Barclays, Skipton and Nationwide have reduced their fixed rates significantly; Northern Rock for example has cut 0.9% from its five year fixed rate.

The Coventry Building Society has reduced their five year fixed rate to less than 3.5% for the first time ever.

Moneyfacts said the current best buy fixed-rate mortgages for four and five years, offered by the Coventry Building Society at 2.99% and Chelsea Building Society at 3.39% respectively, are the lowest rates they have ever recorded. Although both deals require at least a 30% deposit.

Lenders have been able to reduce interest rates as money market rates in the UK and US have fallen as a result of the recent crisis in the Eurozone. Interest rates on gilts and ‘swaps’, which to a large degree determine the pricing of fixed rate mortgages have fallen in recent weeks allowing lenders to reprice their deals.

Mortgage approvals

Despite the reduction in fixed rates and the emergence of more deals for borrowers with a smaller deposit  a report by e.serv, the UK’s largest valuer of residential property, has shown that mortgage approvals for low and middle income earners have fallen back significantly.

In fact it was only at the top end, for houses valued above £750,000, that the number of mortgage approvals risen.

e.serv said “Approvals fell on all price brackets below £750,000, with lower income buyers in particular struggling to secure mortgage finance against a backdrop of tighter lending conditions.”

It would seem that although more deals exist for people with a smaller deposit, lending criteria remains tight.

Deposits

The past few weeks have seen reports that lending restrictions, particularly in relation to the size of deposit needed, have been relaxed somewhat. This is not confirmed by the e.serv report which said that the average deposit for a first time buyer in July was a whopping 33%, hard to find for most first time buyers.
e.serv said: “Despite more high LTV products entering the market, lending criteria tightened most at the lowest end of the property ladder.”

It is only borrowers though with large deposits who are benefiting from the lower fixed rate mortgages currently being offered. The Coventry Building Society five year fixed rate for example is only available to borrowers with a 35% deposit.