Mortgage blog: Cost of 90% mortgages falls by almost 1% in a year

Posted 24 June 2013

New Bank of England data has revealed that mortgage rates for low-deposit deals have fallen substantially since the government launched the Funding for Lending scheme last year. The research shows that the cost of a fixed-rate mortgage at 75% loan-to-value has fallen by around 0.8% over the last year while the cost of a 90% deal is down by almost 1%.

Costs of mortgages "have fallen significantly" since FLS launched

The Bank of England data shows that £16.5bn has so far been drawn down under the Funding for Lending scheme (FLS), with £2.6bn used by 13 firms in the first quarter of 2013.

27 lenders increased the amount of lending they did in the first three months of 2013, advancing a net £5.1bn to homeowners and businesses. However, 13 firms, including some of the UK's major lenders, reduced their lending significantly.

Prior to the launch of Funding for Lending last July, the Bank of England had predicted that UK bank lending was more likely to decline than increase over the following 18 months. However, having published data up until the end of March 2013, the Bank's report said: "Net lending is expected to pick up and become modestly positive over the remainder of the year."

The Bank also reported that the costs of mortgages "have fallen significantly since the announcement of the FLS and remain at low levels". And, it's not just mortgage rates that have fallen but also unsecured personal loans and loans to businesses of all sizes.

"It's clear from this data that the Funding for Lending scheme has had a positive impact on the cost of mortgage lending," says Keith Osborne, editor of "It's particularly encouraging to see that the cost of low deposit mortgages has fallen by almost 1% in a year. Access to cheaper mortgage deals for first-time buyers is vital to the housing market in the UK. The next step is for banks and building societies to start relaxing their lending criteria and then we may see a real upturn in first time buyer mortgages."

While rates have fallen sharply over the last year, some experts believe there is still further to go. According to Ian Gordon, banking analyst at Investec, a combination of cheap Bank of England funding and extra competition from new lenders could lead to a further fall in interest rates. He said: "I'd suggest a further 0.1 to 0.2% decline still feels quite possible."

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