Mortgage cuts will benefit those that are well off

Over recent weeks a number of mortgage lenders in the UK have cut the interest rates on some of their mortgage products, giving consumers hope that affordability may become a little easier. However, a recent report has suggested that these interest rates cuts are only going to benefit the well off, as most of the lower rate mortgages require a hefty deposit to be put down.

There have been reductions in interest rates on fixed rate mortgage recently, and this has stemmed from a drop in swap rates, which indicate the rates at which banks lend to one another. One official stated: ‘Swap rates – the rates at which banks lend to each other – have fallen by about half a percentage point in the past month, so it is no surprise that fixed rates have started to fall. It is a huge relief to borrowers.’

She went on to state that although the fall in swap rates meant that some lenders had reduced their interest rates the lower rates were only being made available to those with high deposit levels in many cases, which means that those that were less well off and had little in the way of a deposit were losing out. She said: ‘It means the most cash-strapped homeowners with little equity could continue to be penalised with much higher rates, even while the best fixed rates fall.’

This means that first time buyers are likely to suffer more than most, as they do not have any previous property from which to take equity to put towards a deposit, and many have little in the way of savings. This means that most will not have access to the lower rate deals on offer.