Across the board, UK lenders are tightening the criteria they use to assess borrrowers’ creditworthiness.
If your credit status is poor, re-mortgaging could present problems. But if your rating is good, there are still plenty of attractive offers.
In early 2007, lenders were falling over themselves to offer 95% or 100% mortgages. Now, those offers are few and far between, and not only that, they carry premium interest rates. Today’s top deals are restricted to those borrowing under 85% of the value of their property. And self-certified loans also carry an interest rate premium.
The best fixed rate mortgages beat most trackers
But some lenders are certainly offering good deals. Take HSBC and its subsidiary First Direct, which both have two-year fixed rate mortgages on offer at just 4.75% for an 80% LTV.
The only catch is an arrangement fee of £1,498. On larger loans, that still makes it a pretty well unbeatable offer right now. The five-year fixed-rate deal at 4.99%, with an arrangement fee of £598, is even better value.
If you compare that with the best base rate tracker mortgage offers - typically, base rate minus 0.25% for two years - base rate would have to fall a long way before the HSBC loan became more expensive.
Clearly the giant HSBC has decided to use its muscle to win back a share of the mortgage market it lost in last year’s frenzy. Unlike many smaller lenders, it has no problem in financing its mortgages.
The best tracker mortgages are for big borrowers
There are bigger tracker discounts on offer, but they are designed for monster mortgages. Lloyds TSB for example offers 4.88% - base rate minus 0.62% until 30/4/2010.
A great rate, but the arrangement fee is a stonking £3,750, which means it’s only a great deal if you’re borrowing about £250,000. Likewise, Abbey offers 4.99% to 2/5/2010 with an arrangement fee of £2,999.
Variable mortgage rates of course reflect the current Bank of England base rate of 5.5%. Coop is offering 5.49% (base rate minus 0.01%) for two years with a £999 fee. At least another 0.5% is expected to come off base rate in the next couple of months, so if you sign up to a £100,000 tracker deal now you can be pretty confident about a reduction in your monthly repayments of at least £30 per month (on a capital-and-interest basis) over the rest of 2008.
The industry regulator the FSA has warned that many of the 1 million borrowers whose mortgages come up for renewal this year face steep increases in repayments. If you’re among them, get planning now.
Higher rates for BTL
Buy-to-let mortgage rates hit incredibly low levels last year as lenders rushed into the market. Many have since withdrawn completely and those that remain have raised interest rates across the board. A typical offer today is Britannia’s BTL offer: 5.85% (base rate plus 0.35%) for 2 years with a maximum LTV of 85% and an arrangement fee of £999.
Don’t expect BTL rates to fall in line with base rate this year: lenders are likely to want to raise their lending margins further.
Rising repayments? Start planning now
If your mortgage comes up for re-negotiation soon, check the interest rate you’re paying. If your deal started two years ago, it will probably be about 4.5%. On a £100,000 mortgage, that means that if you don’t qualify for a cut-rate deal and have to pay a typical variable rate of 7%, your monthly repayments will rise from £555 to £705 per month.
Provided your mortgage is under 85% of the value of your home, you may be able to secure a discount deal at about 5.5% (monthly repayments £615). Contact a mortgage broker to discuss what offers you might be eligible for.
Status problems? Act now
If you know your credit rating is poor and your mortgage deal comes to an end soon, act now to try and improve your status. Get your credit report here.
Arrears: clear any arrears as fast as you can. Slash as much discretionary spending as you can. Write to the lender explaining what you are doing, ideally enclosing a budget showing how you have cut expenditure so you can meet repayments.
Other debt: If you’re up to date on your mortgage but other debts have risen, get to grips with them. Cut spending and schedule extra payments to reduce your balances on credit cards. But do not make extra payments into personal loans without first checking the lenders’ terms, since this may not save you any interest.
