Mortgage Criteria Becoming More Difficult

According to the telegraph.co.uk, those seeking a new mortgage will have to plan on saving for bigger deposits as lenders continue to squeeze their lending criteria. Mortgages are becoming more expensive. Many lenders have already taken their 125% and 100% mortgage products off the shelf demanding a minimum deposit of 10 per cent in many cases.

Lloyds TSB and Cheltenham & Gloucester, which is part of the Lloyds group, will only lend up to 90 per cent of the property's value whilst Nationwide saves the best deals for those providing a 25 per cent deposit. Banks themselves are having difficulty in obtaining cheap credit from the money markets thus having a knock-on effect to would-be homeowners and other borrowers.

Chief Executive of the Financial Services Authority (FSA), Hector Sants, said: "Banks themselves need to give consideration to how their business models will need to adapt to the changed market circumstances they have seen.

"We will be looking for firms to treat their customers fairly in these arguably more difficult times in prospect."

Sants also went on to say that the credit crunch may not be a short-term problem and to expect mortgages to become more expensive and difficult to obtain.

Saving for a larger deposit and, if possible, improving credit records will help new homebuyers obtain the credit they seek. A spokesperson for Nationwide said they are encouraging new homebuyers to save before they borrow by offering lower rates on fixed and tracker mortgages.

There are good deals on offer for those with good credit and a large deposit. First Direct is offering a 4.75% two-year fixed-rate mortgage to thrifty homebuyers who borrow no more than 80% LTV.

Ray Boulger, spokesman for mortgage broker John Charcol, said: "I would suggest that people look around for a new mortgage well in advance of their current deal coming to an end. Offers from lenders are usually valid for three months and sometimes for six months. On the other hand, if a better deal comes along later you are not obliged to take up the original deal."

From a borrowers point of view, fickle house price inflation is another reason to save for a larger deposit. It may have been easier to obtain a mortgage this time last year however, borrowing 100 per cent LTV or more could lead to negative equity if the property suddenly drops in value due to a falling market.

Your credit record will influence your eligibility for special deals on offer. A director at Savills Private Finance, Melanie Bien, said: "It is important that people are aware of their credit record and how to check it as this could have an influence on the deal they are offered.

"Do not just assume all is well. A friend of mine only discovered that someone else had been using his name to get credit when he tried to remortgage. Now he has been told he cannot get a new deal until everything is sorted, meaning he is stuck having to pay the lender's high standard rate in the meantime. "

Published on March 3, 2008