Gilty Government plan can only bring slow relief

Despite the Bank of England's £50bn swap of gilts for cash for mortgage backed securities, lenders' cost of borrowing is yet to show a significant improvement, dropping a negligible 0.04%. The spread between LIBOR and Bank rate remains a significant 0.88%.

Charcol's Katie Tucker comments: "Alastair Darling is urging lenders to reduce their rates but any improvement to consumers' options will come very slowly whilst lenders' supply of wholesale money is still so pricey. The highest risk is to those unable to remortgage to an affordable rate when their existing deal ends, so it is encouraging that lenders have pledged to treat repossession as a last resort. Many borrowers don't realise that lenders are legally obliged to treat struggling customers sympathetically, offering options such as going interest-only, and now: payment holidays which involve deferring interest. It's vital to call your lender and inform them that if you think you'll have budgeting issues; far from alerting them to potential missed payments, it will flag you up as proactively taking responsibility and asking for more time."

Tucker continues: "Mortgage rates may stop rising but they won't return to the exceptionally low levels of last year, because the lenders were not pricing at cost in 2007; they were pricing at a loss to attract market share of borrowers. 100% mortgages, or the higher income multiples and looser credit scoring of the past few years won't be surprising us with a best-of comeback for quite some time, yet more types of borrower need to be accommodated for the property market to improve quickly. We must prepare for the alternative, which is to literally wait a few years for the first-time would-be buyers of today to save very large deposits whilst property values fall sufficiently for the two to meet."

What products are available now?

"Some lenders can tweak their affordability calculations by ratchetting up the required credit score in their underlying model, but, Accord has tightened its actual income multiples today: borrowers on £22,000 who would previously have been able to get 3.75x income, can now only get 3.25x; this is a taste of things to come.

"Lenders are cherry-picking the juiciest borrowers. Abbey, Nationwide and Halifax all have more expensive deals for people borrowing more than 75%; Nationwide's 2 year tracker is 6.15% up to 75% loan-to-value, it is 6.35% up to 90% Loan to value, and for borrowers with only a 5% deposit it is 6.75%. This means that having only a 5% deposit increases the interest on a £150,000 mortgage by £50 a month, every month, as well as considerably increasing the threat of negative equity. Abbey's 75% 2 year fixed deal is 5.99%, whereas their 95% deal is 7.34% plus a Higher Loan Charge of more than £2,500 on a £150,000 loan. Yorkshire Building Society has withdrawn any 95% mortgages and is now requiring a minimum deposit of 10%, and Clydesdale now requires a whopping 25% deposit as minimum."

"Chelsea has a 5.49% tracker with no Early Repayment Charges, for those who want to take advantage of potential falling interest rates, however this is likely to be closed quickly as their two year fix at 5.49% is one of the best buys too. Using a broker adds a further layer of defence against the rapidly disappearing rates as they can contact applicants who have outstanding quotes when the lender gives notice of a rate closure."