Mortgage deals shrinking by the day
Article source: news.bbc.co.uk
With the credit crunch biting harder by the day, mortgage products available on the market which required low deposits like 5 and 10 percent are disappearing fast; the amount of lending is also being cut and the value of houses are continuing to fall. According to Moneyfacts, the personal finance researcher, only a few of these mortgage products which require only a 5 percent deposit are still available; the amount equals about 60 in total. Such deals are being offered by some of UK’s big mortgage lenders such as the Nationwide, the Abbey and the Halifax. However, mortgage experts are warning that these deals might also soon disappear.
On the other hand, mortgage products for 100% and more of what the property is worth are completely removed from the market place and generally the rate of LTV deals are shrinking by the day. Mortgage lenders are pulling out of these deals one after another.
The market situation has left borrowers with little or no choice at all when it comes to securing price friendly mortgage deals. The choices of mortgage lenders are growing slimmer by the minute and if the market situation doesn’t change soon it could get worse. Borrowers will be left stranded as to which direction to follow to secure long term fixed rate mortgages that do not have them paying through the nose in monthly mortgage repayments at the end of the day.
The mortgage crisis has seen mortgage lending in the UK come down with house sales down by over a half compared with just a year ago and mortgage offers are at an all time low, down from 70% compared to a year ago. As a result, mortgage lenders are doing all they can to avert any possible losses in the future and they are therefore lending mortgages to people with a lower risk profile; in the current economic climate lenders are looking to reduce their risk exposure. Clients with lower risk profile typically have a higher deposit upfront and more equity in their existing homes, sometimes up to 40% or more.
Mortgage borrowers wanting to secure a loan to value ratio of 95% or more are typically being asked to pay a higher interest rate, which in some cases are over 7%. Mortgage customers with a 10% or less deposit are being asked to pay higher upfront arrangement changes. All the augmented charges are geared towards insuring the lender against any defaults. If the borrower defaults the lender may have to sell the property, which in the current climate could often be at a loss compared to the value of the loan. And now, even the 95% deals are available to only a few, HSBC bank is a good example, it has restricted its offer to Graduate Customers who previously held a student account with the bank.
New customers wanting the 95% mortgage deals from HBOS need to open current accounts to be funded by their salary; HBOS is in the midst of being taken over by Lloyds TSB. First time borrowers from HBOS are also being tied in to their mortgage deals for a minimum period of five years to be eligible for any loans of more than 90%.
The crisis has not left anything unturned as even the number of the 90% loans is also falling sharply with an estimate of 837 available a year ago, now down to just 377. As brokers have advised, borrowers have to move fast to secure value for money mortgage deals. In the mean time, as the Bank of England prepares to reduce mortgage interest rates we can only hope that this will translate directly into the mortgage crisis and hence ease the pressure off everyone.
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