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Over the past year, the government’s Funding for Lending scheme has been credited with helping the mortgage market to recover after the global financial crisis. Mortgage rates have fallen while the choice of deals has reached its highest level in years, additionally making changes to the cost of borrowing for high-value mortgages.
While the scheme may have failed to increase lending to first-time buyers it has been responsible for pushing down the cost of high net worth mortgages. And, research from a leading expert has found that the choice of deals available to high-value mortgage borrowers has risen thanks to government intervention. Keep reading to find out more.
The Funding for Lending scheme was designed to increase the number of loans handed out to households and small businesses. In return for increasing the number of loans, banks and building societies have been given access to cheap money from the Bank of England. This has allowed them to cut the cost of their lending, resulting in record-low interest rates, altering the cost of borrowing for high-value mortgages.
Now, Moneyfacts has tracked the number and type of mortgages on the market, comparing the choice of deals now and before government intervention began in Spring 2009. Sylvia Waycot from the data analysts told the BBC that although there are more mortgages on offer now, they are targeted at high net worth mortgage customers and not at first time buyers or those with a small deposit.
Ms Waycot told Radio 4’s Moneybox programme: “If you had a 40 percent deposit in March 2009, there were 272 different mortgage products that you could have chose from to take your mortgage. Since Funding for Lending came in, it rose to 472 and it’s now 544. That market is the market that the banks and building societies are feeling more secure in.”
Islay Robinson, CEO of London mortgage broker Enness Private Clients agrees. He said: “It’s clear that the government’s intervention in the form of the Funding for Lending scheme has allowed financial institutions to cut the cost of borrowing. It is fair to say that the initiative has had its biggest impact at low loan to values; that is people who want to buy with a large deposit or remortgage with a lot of equity.
“Rates for these high-value mortgage borrowers have fallen significantly over the last twelve months to levels we haven’t seen before. A criticism of the scheme would be that it hasn’t opened up a much wider choice of products at higher loan to values and so it remains tough for first-time buyers and those people with a 5 or 10 percent deposit to secure a mortgage,” he added.
Figures from Moneyfacts support this opinion and show that deals at 95 percent have gone, in the words of the BBC’s Paul Lewis, ‘from non-existent to scarce.’
Ms Waycot from Moneyfacts added:” If you are a first-time buyer and were looking for a 95 percent mortgage in March 2009, there were only three on the market that you could choose from. Now there are 54.”
Mr Robinson from Enness Private Clients added: “Supporters of the scheme will point to the increase in the choice of 90 or 95 percent deals but the fact remains that they are still few and far between. The real success of the scheme will be opening up cheap lending to a range of borrowers and there is still some way to go in this regard.”