Hurry! The best mortgages are disappearing fast

by Jane Baker on 30 July 2009  |  2 comments
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These days the best mortgages are 'here today, gone tomorrow'. If you don't act quickly you could miss out.

A new report from lovemoney.com partner, Moneyfacts claims that the average shelf life of a mortgage product has dropped from 23 days to just 14. That's means you now only have a two-week window of opportunity to snap up a deal before it disappears from the market forever.

And, worse still, Moneyfacts' analysts suspect that as the market remains turbulent, the life span of a mortgage deal could become even shorter in the coming months.

At lovemoney.com HQ, we have always advised against hanging back for too long before you make your decision. But now that appears to be truer than ever. The fact is, deals are becoming less and less attractive. So when a top mortgage deal is withdrawn from the market, it is usually replaced with new deals at noticeably higher rates.

So, it's pretty clear: if you see a mortgage you like, act now before it's too late.   

What influences mortgage rates?

Over the last few months I've heard the same question crop up time and time again: Why aren't mortgage rates lower when the base rate is only 0.5%? True, the base rate is at an all-time low, but it doesn't have as much impact on rates as you might think, unless we're talking about tracker mortgages which are directly linked to movements in the base rate.

Libor and swap rates

Mortgage rates are influenced by numerous factors, but not least by the cost of funding for lenders. Where lenders turn to the wholesale money markets for funding, changes in Libor and swap rates are the indicators to look out for.

Libor - which stands for the London Interbank Offered Rate - is a measure of how much interest the banks have to pay when they borrow from each other via the money markets. Meanwhile, swap rates represent some of the cost of funding for fixed rate lending, and help to ensure profits remain steady. So, when Libor and swap rates change, it follows that new mortgage rates will be re-priced accordingly.

So what's the connection with the base rate? Well, Libor and swap rates are influenced by the base rate, to some extent. This is because the base rate is the rate at which the Bank of England will lend other banks money, which sets the background for the cost of money throughout the market.

Unfortunately, at the moment, swap rates and Libor are higher than the base rate, because banks expect the base rate is going to go up sooner or later. This is pushing up inter-bank lending rates now.

And that's why time is so crucial if you want to grab a decent deal.

The full picture

It's not all about increases in the cost of funding. Some lenders have been accused of raising rates above and beyond changes in Libor and swap rates to boost their profit margins as much as possible.

But this is not really the full picture. After all, not all lenders are even able to secure cash for lending by borrowing from other banks. And, while I suspect maximising profits is always pretty high up on any bank agenda, other issues are also coming into play here too.

For example, the availability of cash for lending remains restricted. In other words, credit is still crunched! When a new mortgage deal is brought to the market, the lender will only have a limited supply of money that it can lend out to borrowers at a set rate. Once that money runs dry and the deal effectively becomes fully subscribed, the lender may tweak the rates higher to deter any further applications.

On top of that, lenders are also under extra pressure from the regulator, the FSA, to play it safe and increase their capital reserves. This means there's less cash available to lend which, in turn, can push rates up.

And economic and regulatory pressures are not the only issues. Your mortgage rate will also largely depend on you as the borrower. For instance, if you have a huge deposit to put down - say, at least 40% - or your have a large equity stake in your home, you can expect to enjoy cheaper rates because lenders will, naturally, see you as a lower risk. 

But, of course, the reverse is also true for borrowers with a high loan-to-value ratio where their mortgage represents a higher percentage of the value of their property.

What can you do to make sure you don't miss out?

Despite all of this, it's still important you don't rush your decision and get it wrong. One of the easiest ways to secure a great deal is to get a mortgage broker on your side.

An independent broker usually has the whole of the market at their fingertips, and can search it quickly to find the best deal for your circumstances. This will give you a great chance of getting your application in before the mortgage is withdrawn.

These days, some lenders, such as HSBC and First Direct, prefer not to go through brokers and pay commission. But, instead, they only lend to borrowers who apply directly. That said, many good brokers - such as those here at lovemoney.com - will not charge a fee for their advice, so you'll never be worse off for speaking to them.

So, if you need a new mortgage or remortgage in a hurry, why not give the lovemoney.com mortgage service a whirl. Alternatively, you could do your own research and check out some of the best deals in our mortgage tables.

More: Falling fixed rates just an illusion | The danger of short term mortgage deals

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