Moneysupermarket.com editor Clare Francis is joined by mortgage expert Louise Cuming to discuss the current mortgage market and what we may expect to happen over the next few years...
Video Transcript
Clare Francis: After a decade-long housing boom, it looks as though there could be some tough times ahead for home owners. Over the last few years, lenders have been offering increasingly generous terms on their mortgages which has helped fuel the housing market. You've probably heard stories of people borrowing six, seven even eight times their salary. Others have bought properties without putting down a deposit and some have borrowed more than their house is worth, but those days seem well and truly over - for the time being at least.
There has been a hive of activity in the mortgage market over the past few weeks and many providers are really tightening up on who they will lend to. Northern Rock, Birmingham Midshires, Alliance & Leicester, Abbey, Scottish Widows Bank and Coventry building society used to lend above 100% of a property's value. However, these products have all now been pulled.
We've also seen other lenders tighten their criteria: Royal Bank of Scotland has just pulled out of the 100% market, West Bromwich, Britannia and Barnsley building societies have all increased their minimum deposits requirements, so you have now got to put down at least 10% as opposed to 5% before and Nationwide building society, one of the countries biggest lenders, is restricting its best deals to those with at least 25% to put down.
The main problem for borrowers is the impact this will have on their ability to get a mortgage going forward and this issue will be exacerbated by the slowdown in the housing market. Many of those who bought their homes in the last couple of years with little or no deposit will have been banking on house price rises to build up equity.
However, the market has slowed considerably over the last six months or so, with prices in some areas having fallen. This could mean that those looking to remortgage, find their house is worth little more than they paid for it. In the worst instances, it may even be worth less.
These changes will obviously have an impact on those trying to get onto the housing ladder. But there will also be implications for those looking to remortgage. There are worrying signs and that an increasing number of homeowners may struggle to find a new mortgage, when their current deal comes to an end. So will this mean that some people are unable to remortgage?
Louise Cuming: Well it will be a worrying time, if you need a mortgage of more then 95% of the value of the property at the moment its true that there is less and less choice, but there are some lenders about, so first of all let us do some searching for you to see if we can find a lender that can suit your requirements. If not, don't panic, the house values will go up and so at some stage you will find that the equity is back in your property, and in the meantime what you can do is over-pay if you can afford to, to bring the amount of mortgage down and do some home improvements around the house which could - with just a little bit of effort - drive the value of your property up. So there are some things that you could do in the meantime.
Clare Francis: There is no need to panic but homeowners do need to prepare for a tougher environment over the next few years. And if you are struggling to afford your mortgage payments or are worried about what you are going to do when your current deal ends, don't bury your head in the sand - speak to someone and get help now before it becomes too much of a problem.
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See related article: Consumers hit by squeeze on home loans
