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Thousands of borrowers are likely to be frozen out of the top new mortgage deals as the clampdown on lending by Britain’s major banks and building societies gathers pace. Brokers have warned that lenders are becoming increasingly cautious. Even applicants with an impeccable credit record are finding it difficult to secure goodt deals as the credit crisis worsens.
For borrowers with little or no equity in their homes face the bigest increases in repayments when their existing deals end after Lloyds TSB and the Royal Bank of Scotland (RBS) pulled their mortgages for those with deposits of less than 10% last week.
Banks and building societies are raising their rates for new borrowers too, Halifax, the largest mortgage lender, is increasing the interest rate on its mortgages from the 4th March, adding up to £600 a year to the cost of an average loan.
Alan Harper of Moneyfacts, a financial data service, said: “It is not just those with dodgy credit records who are feeling the squeeze now, the credit crunch has well and truly hit mainstream Britain.”
Hector Sants, chief executive of the Financial Services Authority, the City watchdog, added to the sense of crisis last week when he said the era of cheap credit, which enabled homeowners to borrow up to six times salary, was over. In addition, two of the biggest banks, Halifax and Royal Bank of Scotland, warned that borrowers were going to find it more difficult to raise loans.
Housing market to be affected
Last year, about 150,000 people borrowed more than 90% of their property’s purchase price, and this latest clampdown simply means that they are unlikely to get the loan, something that is likely to accelerate the UK' s housing market’s downturn.
Nationwide reported last week that house prices fell for the fourth month in a row, dropping 0.5% in February, with annual growth falling to just 2.7%, the lowest level since 2005. The number of mortgages approved for people buying a home rose slightly during January to 74,000, but this figure is still the second lowest since September 1995.
Analysts fear the mortgage freeze will make matters worse. Howard Archer, chief economist at Global Insight, a consultancy, said: “It seems highly likely that house market activity and prices will continue to be dampened markedly by the combination of stretched affordability and tighter lending.”
Cheltenham & Gloucester, owned by Lloyds TSB, has told borrowers that they must put down a minimum deposit of 10% for mortgages. Previously it was willing to lend up to 100% of the value of a property. The change means a typical first-time buyer in London has to raise almost £25,000 as a deposit. Nationwide, Britain’s biggest building society, now insists on a deposit of at least 25% if borrowers want the best interest rates.
Melanie Bien of broker Savills Private Finance said: “More lenders are likely to follow suit, meaning repayments will rise for hundreds of thousands of first-time buyers and remortgagers who have diminishing equity in their home.”
Buy to Lets not escaping either
Many lenders are now demanding higher deposits for new buy-to-let loans and insisting on increased rent to cover interest repayments, Woolwich, owned by Barclays, has cut the amount it will lend buy-to-let landlords from 85% to 75% of the purchase price, while BM Solutions is set to withdraw loans for landlords whose rent covers just 100% of their repayments.
Jonathan Moore, of broker Mortgages for Business, said: “Many lenders are reverting to insisting on rental cover of 125% or 130% of the mortgage repayments. This marks a dramatic turnaround from the situation just a year ago when lenders were relaxing the rules to make it easier to borrow.” |
