A number of high street lenders have reduced their loan-to-values, slimmed porting options and raised interest rates in recent weeks
Banks and building societies are introducing “stealth” changes to their mortgage ranges to make it harder for borrowers to qualify for loans, as well as increasing their interest rates.
Since the credit crunch lenders have been operating strict lending criteria, such as asking for much more detail about someone’s financial situation, but in recent weeks they have been making small tweaks which are further reducing the number of borrowers who qualify for deals.
Halifax, for example, has restricted the availability of its two-year, fixed-rate loans for anyone wanting to remortgage via a broker. Whereas previously it offered deals of up to 85% of the price of a property, it will now only lend up to 75%. It has also reduced the number of two-year fixes for purchases, with the effect that anyone borrowing between 75% and 85% loan-to-value (LTV) will pay more.
This comes against a backdrop of economic conditions that mean mortgage rates will almost inevitably rise further. Yesterday, the Bank of England warned that the worsening eurozone crisis could mean that UK households will suffer higher interest rates.
“Lenders are now making a lot of stealth changes to make it tougher to get a mortgage,” said Andrew Montlake of mortgage brokers Coreco. “Together with increasing their rates, they are carefully controlling their market share so they do not get deluged with business they can’t cope with.”
Although increasing numbers of homeowners are requiring flexibility in porting a mortgage, as a sluggish housing market means sellers waiting to complete are sometimes having to move into a short-term rental property rather than risk losing their buyers, lenders are moving in the opposite direction.
Nationwide building society has made it harder for people moving house to port a mortgage from one property to another one. Borrowers who could previously redeem their old mortgage and take the same deal out with the building society on a new property six months later now have just a three-month window. They can also only take up that same deal again if they have told Nationwide of their intentions before redeeming the old loan – something that wasn’t required previously.
Woolwich has also tightened its porting criteria. David Hollingworth of brokers London & Country said: “Now you have a 30-day window to redeem your mortgage on your old property and start it up again on your new one. Otherwise, Woolwich will only reimburse you any early redemption charges if you take out a different loan with it within six months.”
Reduced choice for first-time buyers
Santander has made a number of changes to its product range, some of which constrain first-time buyers.
“It [Santander] has recently reduced the maximum number of applicants on its loans from four people to two and has changed the way it assesses afforadbility,” Montlake said. “It now wants a lot more detail, to the point of asking things like whether or not you put money aside for birthday and Christmas presents. If you have any kind of credit record blip it is also now an automatic no.”
The bank has also reduced the maximum LTV available on new-build properties from 90% to 85%.
A number of lenders have recently stopped lending on an interest-only basis, or drastically cut the number of people who will qualify for these loans.
The Co-operative bank, which includes the old Britannia building society, recently became the latest lender to entirely withdraw its interest-only range. Santander and others have limited interest-only deals to borrowers with a minimum 50% downpayment, effectively excluding first-time buyers.
Rising interest rates
Meanwhile, mortgage rates have been rising in small increments over a number of months, and lenders are pulling best-buy deals from the market almost as soon as they have appeared in some cases.
“It’s not just a sales spiel anymore to say to borrowers that if they see a really good rate to grab it. It really is the case that it could be gone in days,” Montlake said.
Nationwide has bucked the trend and announced it has cut the cost of some deals for the second time this month, this time on all its two- and five-year fixed rates by 0.10%. It has also cut its fees. Its best deal is a five-year fix at 3.89% up to 70% LTV with a £550 fee.
The Post Office has a better deal at 3.59% up to 75% LTV with a £1,495 fee, while HSBC has a two-year fix at 2.64% up to 60% LTV with a £2,000 fee.
“We have no idea how much rates will go up by and how quickly, so now taking a five-year fix where the rates look good value makes a lot of sense,” Montlake said.