Change in mortgages

The housing market has not got off to the best start as we have entered a brand new year. The ‘credit crunch’ which we have read so much about has finally taken hold of a considerable number of households.

House prices are going down across the country and the Royal Institution of Chartered Surveyors state that 49.1%more surveyors have reported a fall in prices as opposed to a rise, thus producing the worst figure since the early 1990’s.

This situation is coupled with the fact that mortgages are becoming increasingly more expensive, with an average fixed-rate mortgage coming in at 7.30% in December, despite the quarter point reduction announced by the Bank of England in the same month.

Certain banks have discretely increased their variable tracker rates, resulting in them sitting well above the official Bank Rate.

It has also been reported by Moneyfacts.co.uk that a number of banks have cut back on the actual amount they are willing to lend against the value of the property. This percentage is known as the loan-to-value (LTV) and there are instances of it being reduced to 90% or even as low as 75% of the property.

So, whilst it is getting more difficult to obtain a mortgage it is not impossible. As ever, when making financial decisions, you need to shop around to obtain the best deal. Most lenders charge an arrangement fee(which on average has jumped from £634 in November 2006 to £827 now according to Moneyfacts.) Some banks will offer amazingly cheap rates - but you may be charged an over the top arrangement fee, or else others advertise no arrangement fee, but come down hard on you with their interest rate. You really have to view all the facts and figures and the small print before making a decision.

Another reason for lenders becoming ‘risk-averse’ is because as little as a year ago, the housing market was booming and lenders would do practically anything to make you choose to borrow from them. For example a former bankrupt person could relatively easily obtain a mortgage for around 7% ( a figure not terribly much higher than the Bank Rate).

Naturally, this situation could not continue and now the lenders have not only cut back the number and type of mortgages available, but also made their terms more stringent. In offering fewer deals and tightening lending criteria, potential borrowers have less selection and may in turn increase the banks’ margins.

However for those with a great credit score/history, the should still have ‘pick of the crop’ when it comes to selecting a mortgage.