Mortgage Deal Meltdown
03 April 2008
The current economic climate is impacting on mortgage products, and unfortunately the trends don’t appear to be in the best interests of borrowers.
It doesn’t matter if you are a first time buyer (the lender will want you to have a hefty deposit) or an established customer with good equity (the arrangement fee for a short-term mortgage could be 2% of the mortgage!). What’s happening?
In short, the lenders are trying to get their houses in order to see out the worst of the credit crunch. Just this week, for example, the Co-operative Bank has withdrawn its two year deals and the internet bank First Direct has suspended its entire range.
Last week Nationwide said that they were actively trying to make some of their mortgage products less competitive so they could concentrate on slightly fewer, less risky borrowers. Cheltenham & Gloucester have done something very similar and Northern Rock, perhaps unsurprisingly, is pushing its existing customers who need to remortgage elsewhere.
Some experts point out that the reduced availability of cheaper mortgages may compound the drop in property values. Of course, others point out that this would only correct what has been viewed as an over-heated property market over the past few years – effectively chickens coming home to roost.
This all means that there is a new mortgage landscape. It is anticipated that five year fixed-rate mortgages will become more popular to increase stability (for lenders and borrowers), with two-year deals becoming quite expensive as arrangement fees increase. Secondly, lenders will be expecting to see bigger deposits and smaller lending multiples around salaries. Also, the best deals will be rationed, popping up occasionally to be won by the canniest customer who can move fastest.
Increasingly, the advice is to start researching your re-mortgage early (even though some lenders will only entertain enquiries in the last months of your existing deal).
How the housing market responds to this new reality remains to be seen, but as we have said elsewhere on SaveBorrowSpend, home sellers will have to be realistic about asking prices (some agents are rumoured to be advising an immediate 10% knock-off on an asking price).
Stick with us to help find the best deals to navigate the mortgage maze.
SaveBorrowSpend Philippa Adam
