Can Cheap Fixed Rate Mortgages have any Real Impact?

The market is currently awash with cheap fixed rate mortgages but with deposits continuing to be sky high, how much impact can they really have?...

The market is currently awash with cheap fixed rate mortgages but with deposits continuing to be sky high, how much impact can they really have? Property investment is increasingly becoming nothing more than a dream for many in the UK, with a report from the House Builders Federation (HBF) revealing that saving a deposit for a home will now take the average first-time buyer ten years. This time frame is even greater in London and people in the capital are faced with 24 years of saving before being able to buy a house of their very own.

However, once the actual matter of saving for a property is overcome, market conditions are actually in favour of buyers. Moneyfacts claims that fixed rate mortgages are now at the cheapest level since they were introduced in 1989. With around 80 per cent of investors choosing this sort of mortgage, this is undoubtedly good news and is evidence that the government's attempts to kick-start lending are paying off. After all, these cheap mortgages are only possible because the Bank of England and the coalition have made £80 billion available to banks and building societies through the Funding for Lending Scheme.

Sylvia Waycot, editor of Moneyfacts, told the Daily Mail: "Fixed rate mortgage rates are dropping like stones. More and more homeowners are benefiting from cheap fixed-rate mortgages as a result of the government's scheme. Rates started a slow descent shortly after the Funding for Lending scheme began last August, and have picked up speed. New 'best ever' deals are coming onto the market almost daily."

Nevertheless, the ability of cheap mortgages to turn the fortunes of the property sector around has to be questioned. Deposits are still high and with the cost of living going up, the ability for a first time buyer to save for a home is significantly reduced. Lower rates also don't mean it is easier for a mortgage to be approved. Investors must still have a clean credit record and a stable income to keep up with payments. Banks continue to be reluctant to take risks and until this changes, getting on the property ladder will be a challenge for many.

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- Monday 25 February 2013

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