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Clare Francis: Britain has one of the most developed and competitive mortgage markets in the world, and the days of would-be borrowers having to put their names on a waiting list for a home loan seemed to be long gone. However, that was before the onset of the credit crunch.
The liquidity crisis is continuing to tighten its grip on the mortgage industry and lenders are finding it increasingly difficult to raise funds for home loans. As such, many of the best rates aren't hanging around for long because the small tranches of money set aside for them are being used up so quickly.
We are also seeing lenders restrict the availability of many deals; some of the smaller building societies are only lending to people in their local areas, but even larger lenders are finding things tough. Halifax, Abbey and Lloyds TSB are among those that are restricting the products among mortgage brokers, and most lenders now require borrowers to put down a deposit of at least 10%.
Louise Cuming, head of mortgage services at moneysupermarket.com, is here to explain what's going on.
Q1: Louise, the credit crunch is lasting for longer, and is far more severe, than many lenders had anticipated. Is there a risk that we could see the mortgage market being brought to its knees, and that borrower may have to put themselves back on waiting lists to get a mortgage?
Louise Cuming: Well hopefully things won't get that bad, but undoubtedly it is a really challenging time at the moment and obviously those hardest hit are those with a poor credit history or people without either equity in their house or a larger deposit.
Q2: What can people do to maximise their chances of getting a competitive deal?
Louise Cuming: Well really its two things. One, we're looking for as big a deposit as possible so try and save as much as you can, and secondly keep on top of your credit score, so make sure you understand what your credit rating is and make sure that everything on your file is up to date and accurate.
Q3: What sort of rate can you expect to get if you do have a deposit of more than 10%?
Louise Cuming: Well really you have got to be quite careful, because what you would say at the moment is that cutting edge deals are below 5%. So if we look in the 2 year market - I'm having to look here because they change so quickly - if you look in the 2 year market we have got a 4.78% tracker with C&G [Cheltenham and Gloucester], or we have got a 4.99% fixed rate with the Abbey but both of those carry big fees. So, in the case of the C&G its 2.5%, so for a £100,000 that would be £2,500 fee which is a lot of money and it's similar with the Abbey.
If you are looking a more reasonable fee, then you are looking around 5.5%. We have got the Derbyshire with a 5.5% tracker and HSBC with a 5.46% tracker, and both of them have £999 fees - big enough but obviously significantly lower than you would pay for lower types of rates.
If you are comfortable about fluctuating rates and you are looking at trackers, then life time trackers are still quite a good option and there are still some competitive deals without any tie-ins at all. So for example you could go to the Derbyshire who have got a 5.48% lifetime tracker, with a £999 fee, and you have the complete flexibility of being able to come out whenever you like.
Q4: And you don't have to worry that if fees continue rising, or if the credit crunch doesn't ease in the next few years you are going to have to remortgage again - you can just stay with that provider?
Louise Cuming: Absolutely.
Q5: The other potential problem is for those coming to the end of their current mortgage deal - are they going to be able to remortgage? I suppose those most at risk are those who brought in the last year or two - the slowing housing market means that many of them may not have seem the value of the property rise as much as they had been expecting and therefore they have not been able to build up equity. With few lenders now offering loans up to 95% or 100%, could these people find themselves stuck and unable to remortgage?
Louise Cuming: That is a really good question and it's one that has been posted to us by an awful lot of borrowers at the moment and realistically the kind of things that you can do are - although it might be easier said then done - overpay on your mortgage, if the lender allows; do some home improvements - carefully prioritised home improvements can put the value of the house up more then the cost of the home improvements; or alternatively use your savings or even maybe a nest egg that you can borrow from relations to put towards your mortgage to bring your borrowing down.
Clare Francis: Great, thanks very much for your help Lou.
Louise Cuming: Thank you.
