Get your mortgage bolted down now
By Chris Gilchrist 06th
December 2007
The credit crunch is going to roll on into 2008, making all types of loans more
expensive and harder to get. Act fast to avoid mortgage misery.
Forget falling house prices. If you own a home, in the long run it’ll turn out a
good investment. If you still own it. Which depends on you having a mortgage- and
that’s looking the trickiest bit.
Analysts reckon the number of ‘sub-prime’ loans available has plummeted by over
60% since the summer, partly thanks to Northern Rock’s withdrawal from the lending
market. And their price is rising too.
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Conditions are getting tougher
On top of that, the Financial Services Authority has been investigating mortgage
brokers and is about to punish some for misbehaviour, which may well have included
colluding with borrowers to inflate their incomes so they could get the loans they
wanted. So forget using an intermediary to lie on your behalf - it means a possible
jail sentence.
So the outlook for borrowers is grim. Some are already feeling the pinch, since
according to Lloyds TSB, two-thirds of recent re-mortgagers are cutting their Xmas
spending.
Looking further ahead, one member of the Bank of England’s Monetary Policy Committee,
Rachel Lomax, doesn’t think this is a blip. She recently said it was possible that
all lending rates would rise in relation to the Bank of England’s base rate over
the next five years.
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No more easy money
The truth is that we have been through an era of easy money and it has ended. That’s
it. From now on, lenders will be much more careful and diligent in assessing creditworthiness,
checking incomes and affordability and so forth.
For most borrowers, this won’t be a problem. But if you borrowed to the hilt to
buy your home two years ago, and now face rising repayments, you may well end up
paying a higher rate of interest.
In the short term, it could get nasty. The FSA has warned lenders to be prepared
for ‘a worsening of liquidity and credit risks’ in coming months. As a lender, one
way to prepare is to hoist the rates of interest you charge.
So even though the average fee on a mortgage has almost doubled from £441 to £827
over the past two years, according to Moneyfacts, it may pay you to grab one of
today’s deals. Tomorrow’s offers could be more costly.
Compare the best low cost mortgages here
Good credit, good loan
If your credit rating is good and you don’t need to borrow a lot, there are still
plenty of good-value deals on offer. Fixed rates at under 5.7% over two years are
on offer from First Direct (80% LTV, £1,598 fee) and London & Country (90%, £999).
Britannia’s 5-year mortgage at 5.39% is a current best buy (80%, £999).
But with the odds now favouring a cut in the Bank England’s base rate (currently
5.75%) next year, a discount tracker mortgage could save you more. Good value comes
from the Coop (2 years, base rate minus 0.01%, 95%, £999) and National Counties
(base rate minus .1%, 2 years, 80%, £395).
Be warned, though. If Ms Lomax is right, conditions in two years’ time could be
tough, with loans priced generally higher. In which case as five-year deal like
Britannia’s avoids the need to secure a new deal.
Another viable strategy is to sign up for a lifetime tracker mortgage where the
lender can’t raise the rate.
If you are financially stretched, don’t hope for the best. Create a new budget with
lower spending and stick to it. When you need to refinance, you must be able to
show you are managing OK and will be able to cope with the new and higher level
of monthly repayments.
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Article produced by EveryInvestor.co.uk
