In this part of our guide, we look at who has been affected by the credit crunch and how
Who Has Been Worst Hit?
This is where a lot of confusion has occurred. Most of the UK’s 12 million mortgage holders will still be able to fund a new purchase or arrange their remortgage, although often at higher rates. However, we have seen lenders withdrawing mortgage products from areas of higher risk.
Borrowers looking for 100% or more of the property value will have always found little choice, but now 100% will be the maximum. Even then your choice will be limited to Bristol and West, and Bank of Ireland, but in both cases you will need to include parental income to qualify.
Following on from the decimation of the 100% market, we are now seeing signs of lenders withdrawing from 95% lending, putting further pressure on first time buyers. While it is still early days, and the majority of lenders are still active in this market, we are monitoring developments closely.
Borrowers who have had credit problems in the past will also find things tougher, with mortgages for those with the severest problems all but gone. Those with perhaps just a slight hiccup should still have plenty of choice but you may pay more than 6 months ago and lenders will be reluctant to lend to a high percentage of the property value.
New build flats, especially where the borrower plans to let the property have also fallen foul of the credit crunch. Where once lenders would happily lend up to 90% of the value, in some cases now they will not go above 50%.
Some buy to let borrowers will find their choices more limited regardless of the age of the property as lenders have increased the minimum deposit required to 15% and have also increased the amount of rent needed to service the mortgage.
What About Interest Rates?
Since the credit crunch struck in August last year we have seen the Bank of England reduce base rate twice down to 5.25%. However, while this is good news for borrowers it hasn’t led to the mass of cheaper mortgages that some expected. This is because there is very limited funding available in the market, and at a higher cost, so lenders have to restrict the amount of lending they do. In order to achieve this they have reduced, and in some cases stopped lending to certain types of borrower.
In practical terms the best tracker rates now track base rate at least 1.0% higher than before the credit crunch, and while we have seen some cheaper fixed rates, those coming off a cheap two or three year fixed rate now will find similar products priced 1% higher than their current rate.
As lenders continue to struggle with both funding and maintaining service levels we are seeing mortgage schemes being withdrawn daily, sometimes within days of the scheme launch, and the replacement products are almost universally higher.