Mortgage calculator: is it better to rent or buy?

Homebuyers can look forward to better mortgage deals in “a matter of weeks” after an announcement by Northern Rock that it would inject £14billion of funds into the housing market in the next two years. The Treasury says that the plan, which could make available an extra £5billion this year and £9billion in 2010, is likely to benefit first-time buyers and home movers who are looking to take advantage of lower house prices.

Even those with smaller deposits worth 10 per cent of a property's value could benefit from the beleaguered bank's return to lending, although Northern Rock is not expected to revive its infamous former policy of lending up to 125 per cent of a property's value.

David Hollingworth, of the mortgage broker London & Country, says: “For a long while after the bank was nationalised, it barely did any lending - its focus was on losing rather than attracting customers, so it did not offer any best-buy loans. This is an about-turn and could mean that those looking to buy a home can get a mortgage to do so.”

Estate agents, such as Phil Tennant, regional sales director at Hamptons, consider Northern Rock's entry as a “step in the right direction” as it could encourage other banks, bringing back competition and therefore better deals for customers. Tennant also thinks that Northern Rock could steal a march on the competition if it offers a streamlined loan application process. At present even the creditworthy are waiting weeks for lenders to say “yes” or “no”.

Northern Rock said that it would be weeks rather than months before the new deals come on to the market, but anyone with a deposit worth less than 10 per cent should not raise their hopes, as they are likely to remain frozen out.

Prospects remain equally bleak for borrowers who took advantage of Northern Rock's liberal lending policies before September 2007 - they will have to wait to hear if they will benefit. Many of these owners, who were given loans worth up to 125 per cent or more on the bank's “Together” mortgage range, have since come to the end of their deals and found that they are unable to remortgage, leaving them stranded on the bank's higher-than-average standard variable rate, at 4.79 per cent from March 1.

Gary Wylie, 27, pictured, has found himself facing this reality. He bought a £128,000 two-bedroom flat in Glasgow with a 100 per cent Northern Rock loan in November 2006 - close to the height of the boom. Falling values in the area have meant that his house price has now fallen to below the original purchase price. He and his wife Rachel cannot afford to move as they had planned, as they are not eligible for any other mortgage deals. The couple are paying a relatively high five-year fixed rate of 5.99 per cent.

Wylie, a delivery manager, is disappointed that the Government's extra funds won't help him or others hit by negative equity. “If we sold up, we'd have to find £16,000 and we just haven't got the money to cover that kind of loss. The biggest problem is trying to get a deposit to qualify for a competitive mortgage. Northern Rock reintroducing 90 per cent deals is just not going to help.”

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