Different types of mortgages, from London Mortgage Advice Wednesday, 25th March 2009

Confused? what with falling house prices affecting loan-to-value (LTV) ratios, brokers calling the bottom of the fixed-rate market and risk-averse lenders rejecting loans.
Six months after the Bank of England first began cutting interest rates, brokers believe that it is time to consider fixing before rates start to climb, particularly if you have enough equity in your home to qualify for the best deals.

Brokers recommend locking in now because the Bank of England is likely to increase rates sharply next year to tackle an expected rise in inflation.

Ratios of 90 per cent or more are rare and expensive. High-LTV borrowers who have reverted to cheap SVRs have two choices: to sit and wait or to lock in to a pricey fixed rate.

Though ates are high, but remaining on an SVR could be risky. Falling house prices could push LTV ratios higher, making it harder to get a loan later in the year. =If you decide to remain on a SVR while rates are low, it is vital to use the money saved to overpay your loan, reducing the LTV ratio.

Some SVRs have fallen in line with the base rate. Smaller building societies have consistently failed to pass on the Bank of England's monthly cuts. For example, Chelsea Building Society has an SVR of 6.45 per cent, while the Stroud & Swindon has an SVR of 6.29 per cent.

If you have a smaller mortgages and a good credit record should waste no time remortgaging. Borrowers with less equity in their home may struggle to find a competitive new rate, but sitting on the SVR will only compound the situation.

It is tempting to sit and wait to see if rates for homeowners with higher LTVs fall further. But could you cope financially if rates begin to rise? If not, it would be smart to pick a fix now.

aSome lenders allow you to break your mortgage contract for a fee, known as an early repayment charge (ERC), typically a percentage of the total outstanding debt. Paying an ERC of 3 per cent on a £200,000 loan would cost £6,000.

Houses buyers locked in to high rates for three or five years could still save by paying the charge and switching deals. However, do your calculations carefully and seek advice.

Lenders are making a cautious return to the market for first-time buyers. Abbey unveiled a new deal this week, fixed for four years at 5.84 per cent. It requires a 15 per cent deposit and a fee of £495.

To access cheaper rates, buyers need to raise at least a 25 per cent deposit - about £40,000 on the average house price.

A government scheme designed to boost home ownership. HomeBuy Direct, a shared-equity scheme, allows first-time buyers to combine a traditional loan from a bank or building society with a joint loan from the Government and a property developer to purchase a new-build property.
Schemes include NewBuild HomeBuy, a shared-ownership scheme that allows homebuyers to purchase a share of a property and then rent the rest, usually from a housing association. The share that you own can be increased gradually - a process known as “staircasing”.

Lenders have pushed up the cost of larger mortgages recently. Best-buy deals are now frequently capped at £500,000 or even £250,000.

C & G has restructured its range, grouping loans between £500,000 and £1 million with pricier deals for loans up to £2 million. Its cheapest fixes and trackers are now available only on loans up to £499,000. A two-year fix up to 60 per cent LTV has a rate of 3.89 per cent for loans below £499,000, or 4.89 per cent if you want to borrow more than £500,000.