Moneyfacts.co.uk guide to survival in the changing mortgage jungle

Julia Harris, analyst at Moneyfacts.co.uk, comments: "Exclusive Moneyfacts.co.uk research reveals a significant drop in the number of residential sub-prime mortgage deals available, falling by 64% since July this year.

"If borrowers have overstretched themselves with an unaffordable sub prime deal, worse troubles could lie in store. Even if they can weather the storm and maintain their mortgage payments until their deal expires, getting a new deal may become almost impossible if the current trend continues.

"With such a reduction in the number of products and lenders taking a considerably more conservative approach, often not lending to those with the most serious debt problems, finding a lender prepared to take on your loan could prove difficult, not to mention that rates have been rising too.

"But staying on a revert to rate could be a costly move too. Most are linked to LIBOR plus a margin, so they are typically much higher than a standard SVR.

"If you are finding it a struggle to make ends meet, go back to basics and make a budget. Write down your income and expenditure, review any luxury bills and consider ways to cut back on your day to day expenditure. Speak to your lender as early as you can. Burying your head in the sand is the worst action you can take."

"First time buyers with a history of debt problems will find it a lot harder to find a mortgage than they did a year ago. Now is the time for them to take a step back and spend some time getting their finances in order, rather than jumping into what will be the largest financial commitment of their lives."

Fixed or variable?

"With signs that variable rates are becoming back in vogue, it is important that borrowers realise the difference in how discounted or tracker rates can work. Trackers will follow the Bank of England base rate by a given margin, whereas discounted mortgages can be a discount off the lender's standard variable rate. As we have witnessed with Standard Life Bank's shock move to raise its SVR while base rate was stable, an SVR is a managed rate and lenders are quite within their rights to change this at any time. They are not obligated to pass on all or any of a base rate change.

"While the sub prime market has suffered a major shake up in the last few months, the prime market remains very competitive, both in the number of products available and the deals on offer. Looking at the true cost of a £200K repayment mortgage over a 25 year period, Moneyfacts.co.uk research reveals there is little difference in the cost of a fixed, variable or discounted rate. If anything the variable rates have the slight edge at the moment.

"If you are considering a variable rate deal, it might be wise to wait until the market has settled. Comparing a tracker, which is more than likely to have been reduced, to a discount rate linked to SVR is unlikely to produce fair results. With around 20 lenders announcing their commitment to reduce their SVR so far, there is still plenty of change to come.

"With the costs of a fixed rate or variable deal very similar, there is a competitive deal to suit those looking for the stability of a fixed rate or wanting to take the opportunity of potential rate reductions with a variable deal."