Mortgage mayhem but don’t panic, get advice

Charcol’s Katie Tucker comments: “Despite the Bank of England making available to the financial markets another £5bn to ease the liquidity crisis (which was immediately five times oversubscribed), this weeks’ headlines will inevitably concern mortgage borrowers. Monday’s turmoil on the stock market, following a budget with disappointing provision for homeowners or first time buyers, in a climate where precious few remaining lenders can accommodate high risk mortgages such as those with no deposit, bad credit, or new build properties, is a worry for many.”

“First time buyers have little or no choice but to save a 10% deposit now. Very few lenders offer high loan-to-value products, but these products literally have a day-to-day lifespan, so borrowers need to move very quickly: they are going, going, gone. Also, it isn’t just a matter of ‘can we?’ but also ‘should we?’; first-timers should reconsider very carefully if this is the right time to buy, given that properties in many areas are expected to lose value. Unless household income is strong enough for a good amount of capital to be paid off monthly, there is a risk of falling into negative equity if buying without a decent deposit.”

“It is important that existing borrowers, who are due a remortgage, do not panic, but instead take a whole-of-market broker’s advice on what is now available to them, and absolutely prioritise monthly affordability of any new deal, to ensure they don’t fall into financial difficulties.”

Inflation reached a nine-month high in February. Tucker continues: “For borrowers, this means that whilst more interest rate cuts are needed, to stimulate growth in the economy, inflation has to be held down so we may have to wait at least until May before mortgage rates are reduced again.”

What products are available now?

Three-month LIBOR stands at 5.97%, some 0.4% more than at the start of February, although the Bank rate has since been cut to 5.25%. Miss Tucker continues: “It is costing lenders more than last month to borrow, so rates have predominantly been rising. This week Mortgage Express increased its rates by an extraordinary 1.15% on some ranges and Scottish Widows pulled out of most lending types, to cope with demand. For high loan to value deals, Bank of Ireland still offers the ‘First Start’ at 100% loan-to-value when a parent’s income is included, and Bristol and West has a 95% mortgage at 6.25% for a £799 fee, crucially with no Higher Lending Charge (HLC). Woolwich has stormed into the 10-year fixed rate market with a 5.29%, for a fee of just £995 and free valuation and legals on remortgages. This is only available up to 60% loan-to-value, but will suit many remortgagers who want to secure their budget and can commit for ten years.”