Woolwich joins battle for cash-rich borrowers

Published 16th Sep 2009

Britain’s biggest mortgage lenders are battling to attract cash-rich borrowers with historically low interest rates, but experts have warned that many borrowers are still being excluded from the best deals.

Woolwich, the mortgage lender owned by Barclays, is to offer homebuyers a historically low interest rate of 1.98 per cent from tomorrow.

The one-year tracker deal is designed to undercut HSBC, Britain’s biggest bank, which introduced a two-year discounted deal with a rate of 1.99 per cent a fortnight ago.

Experts hope that the new ultra-low rates will provide a boost to the mortgage market, which has suffered from a lack of competition. However, both lenders have been accused of cherry-picking the most creditworthy customers because the deals require at least a 40 per cent deposit.

Woolwich continues to charge up to 6.99 per cent for borrowers with a 15 per cent deposit, typically first-time buyers. That amounts to an extra £7,500 a year in mortgage repayments on a £150,000 interest-only deal compared with its best deal.

Fewer than half of new borrowers qualify for deals requiring a 40 per cent deposit, according to London & Country Mortgages, a nationwide broker.

Mortgage rates could fall in the coming weeks after swap rates, the interbank money markets that dictate the cost of fixed-rate home loans, fell to a record low yesterday. Two-year swaps fell to 1.83 per cent, a record low, and three-year swaps fell to 2.54 per cent and five-year swaps hit 3.27 per cent.

However, Royal Bank of Scotland, which is 70 per cent owned by the taxpayer, is raising the cost of a number of deals today. A five-year fixed-rate for borrowers with a 10 per cent deposit is rising from 7.24 per cent to 7.49 per cent, with a £999 fee.

Ray Boulger, senior technical director with John Charcol, the broker, said: “Nationalised banks are paying more to borrow wholesale money than those that remained independent, which is part of the reason why those that didn’t take the government shilling are currently far more competitive in the mortgage market.”

HSBC was the biggest net lender in the first half of 2009, with £4.2 billion in new lending. Barclays came second, with £2.2 billion in new net lending.

Source: ' Times '

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