Why it's tougher than ever to find a mortgage deal if you're a first-time buyer


Last updated at 09:37 24 March 2008


Banks and building societies are making it harder than ever to get a mortgage as they force their customers to pay for their losses in the credit crunch.

Lenders are cutting the number of mortgage products on the market by the day, with some abolishing their entire range. At the same time, they are raising the thresholds and tightening the criteria on which they lend to buy homes.

The result is that they are closing off the property market to all but the most wealthy first-time buyers.

Meanwhile, up to 1.4million face a sharp rise in repayments as the cheap fixed rate deals they secured several years ago come to an end.

This is not only because interest rates have risen sharply since the deals were first taken up, typically two or five years ago. Banks and building societies were also accused of increasing profit margins to recoup their credit crisis losses.

Even a borrower with a modest £114,000 mortgage at the end of a fixed rate deal now faces paying an extra £140 a month or £1,680 a year, according to the Council of Mortgage Lenders.

The real figure could prove to be even higher, as lenders change their rates and the deals on offer at short notice.

Adding to the misery, lenders are refusing to take on risky business, turning down those who are unable to put down a deposit or want to borrow more than three or four times their salary.

As consumer groups accused banks of being "reckless", Eddy Weatherill, chief executive of the Independent Banking Advisory Service, warned: "They all got into this position and now the consumer is going to pay for it."

Figures compiled by Germany's Deutsche Bank showed that in a single year lenders have massively increased the difference between the rate they borrow at and the rate they charge their customers.

The move will affect tens of thousands of home-owners who already face an average monthly rise of £200 as fixed rate deals come to an end.

Of the disappearing home loan deals David Hollingworth, of the mortgage advisers London & Country, said last night: "They are being pulled quickly and without notice.

"Borrowers would have been able to get 100 per cent a couple of months ago, now we are looking at 95 per cent being under threat.

"People could have been fixed on a 4.5 per cent deal - or even lower - and now they are looking at 5.5 per cent or 5.75 per cent.

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"Lenders are lending, but there is no room for complacency. People need to act quickly. Lenders are not looking for large volumes of business and they are looking for less risky business."

In 2007, a home-owner on a standard two-year fixed rate deal with a small deposit would have paid an interest rate just 0.2 per cent higher than rate at which their bank borrowed the money. Now, the typical mark-up is 1.6 per cent.

A year ago, the Halifax was so keen to attract new business that its two-year fixed rate deal, at 5.14 per cent, was lower than the rate at which it could borrow the money - 5.64 per cent. The cost of borrowing has now dropped to 4.89 per cent, but its two-year deal is currently 5.99 per cent.

Yesterday, it emerged that home-owners with Northern Rock, which pioneered the 125 per cent mortgage, are being sent letters telling them to leave the stricken bank. It used to compete ruthlessly to persuade borrowers to switch to another of its deals, but the letter encourages customers to shop around.

To make matters worse, home-owners coming to end of fixed rate deals are having thousands of pounds knocked off the value of their homes by surveyors, with some properties worth less than they were two years ago.

A growing number of mortgage providers are also capping the amount that can be borrowed at £350,000 - a huge problem for those looking to buy larger properties.

Those who bought outside London two years ago could easily have lost 5 per cent of the value of their property, according to experts. Coupled with tighter lending criteria, this could mean they are unable to remortgage and find themselves hit by increases in their interest payments by up to 50 per cent.

Fall in the housing boom

House prices have fallen around 10 per cent from the peak of the boom last summer, a report says today.

It urges anyone thinking of selling to "get real" and accept this if they want to have a proper chance of finding a buyer.

Homeowners are still demanding prices which are close to the all-time record. But, after a few weeks, they are having to admit their mistake ask for less.

The report, from property website Rightmove, also says the credit crunch could make some homes "unsaleable" - with cheap mortgage deals disappearing every day, potential buyers may not be able to get a loan.

Miles Shipside, Rightmove's commercial director, urged sellers not to panic despite the fall in prices. Even if they sold for a lower price, they would buy their next property for a lower price too.

The report shows the average asking price in England and Wales rose 0.8 per cent this month to £239,655.

But the asking price may be a long way from the actual price for which a property sells.

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