Abbey set to reverse trend and loosen criteria for most popular home loans

Published 14th May 2009

Abbey, the country’s second-largest mortgage lender, will relax the lending criteria on its most popular home loans tomorrow, providing a significant boost to the mortgage market.

The lender, which is owned by Santander, of Spain, is lowering the minimum deposit required for its best fixed-rate deals from 40 per cent to 30 per cent, making its most competitive deals available to tens of thousands more prospective homeowners.

The move came as the Bank of England said that the recovery in the economy would be slow and protracted, raising the likelihood of low interest rates for at least another year, economists said.

Existing homeowners on variable-rate mortgages will welcome the prospect of the base rate holding at 0.5 per cent into next year. More than four million borrowers on tracker mortgage rates have seen their rate fall in line with the base over the past eight months, knocking hundreds of pounds off their monthly payments.

Another 1.5 million existing borrowers have reverted to standard variable rates (SVRs) at the end of their deals, which are linked to the base rate. Nationwide and Lloyds TSB market SVRs of 2.5 per cent.

Abbey is offering a two-year fixed rate at 3.65 per cent on deals worth up to 70 per cent of a property’s value, with a fee of £995.

However, fixed rates for new customers have started to climb in recent weeks, with Royal Bank of Scotland raising some deals by up to 0.7 percentage points. Britannia and Yorkshire Building Society also raised rates on their longer-term deals. Mortgage lenders blamed a rise in rates on increases in the cost of borrowing money on wholesale markets.

Mortgage experts suggested that an extended period of low interest rates may keep a lid on further rate rises on the money markets.

This came as figures were released indicating that potential buyers and sellers were much more optimistic about a recovery in the housing market than they were at the start of the year. More than 70 per cent of prospective buyers surveyed by Rightmove, the property website, said they thought that it was a good time to buy – a significant turnaround from the beginning of the year, when 69 per cent of respondents expected prices to fall. Only a third of those surveyed now expected further price falls.

Younger people were particularly optimistic, with 41 per cent of those aged 18 to 24 expecting prices to rise, compared with 28 per cent of those aged 35 to 44.

Miles Shipside, of Rightmove, said: “It’s not just sentiment. So far this year we’ve seen e-mail inquiries to agents soar by 109 per cent compared to the same period last year.” However, he noted that only those with cash or a “decent deposit” were able to take advantage of rock-bottom prices because of lending restrictions.

Source: ' Times '

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