Mortgage Life To Get Tough
The year 2008 looks like being a rough road for homeowners. Associated costs are up, but house prices are on their way down. For those coming off fixed rate mortgage deals from two and three years ago, 2008 will be particularly tricky.
As banks try to protect themselves and avoid falling into the same trap as Northern Rock, they will become more discerning and less willing to lend money for homes. Consumer confidence has fallen to its lowest level for four years.
For the 1.4m borrowers who are coming off fixed rate deals there is a warning from the Financial Services Authority that they will be vulnerable to a terrible shock of much higher mortgage costs and, due to tightened lending criteria, a reduced chance of even getting a new mortgage deal.
Last week the Bank of England reduced the base rate by 0.25%, but there is no guarantee that all lenders will pass on that rate cut in their mortgage rates, although Halifax and Nationwide have both said that they will do so from 1st January in their Standard Variable Rates. The best two-year fixed rates are now about 1% higher than they were 12 months ago - 5.4% as opposed to 4.5% - which has added almost £60 to monthly repayments on a mortgage of £100,000.
Borrowers who need to remortgage, but now have an impaired credit history are going to find life even tougher. They will now have to contend with high interest rates and even tighter lending criteria. A lot of lenders are now demanding that borrowers have at least 25% equity in their property rather than 15% a year ago.
The bleakest outlook is lenders closing their books to new orders, as Kensington Mortgages of Berkshire has done. They specialise in the sub-prime market. This trend could leave those with poor credit histories finding it almost impossible to finance a home loan.
Ray Boulger of central London broker John Charcol says borrowers should not panic. "Only those with adverse credit are having difficulty remortgaging to a competitive deal," he says. "That's not to say the market won't be tougher next year. All borrowers coming off special deals should brace themselves to pay more. But there will still be plenty of good fixed and tracker deals available."
It is wise to get ahead of the game, so if you’re coming off an old deal early in 2008, start looking for a new deal now. Acting early will enable you to find a broker or mortgage advisor who can scour the whole of the mortgage market for a deal for you.
David Hollingworth at independent broker London & Country Mortgages says if you talk to your present lender first, you will have something to compare new mortgage offers against. He added: "If it can offer you a reasonable deal it is worth considering, particularly as staying means there won't be any need for a new valuation of your property or credit checks. But the majority of borrowers should not have any difficulty switching to any deal in the market if they want to take advantage of the best rates."
Published on December 12, 2007
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