The credit crunch and mortgages

For millions of mortgage borrowers, the past few weeks have been highly confusing.

First, the so-called 'credit crunch' meant that the cost of some variable home loans has risen.

Many lenders re-priced across the board – with variable rates and tracker rates in particular, suffering. Two of the UK’s largest mortgage lenders, Halifax and Abbey, both increased rates on their tracker deals – Abbey’s leaping from 5.69% to 5.99% while Halifax upped the ante on 20 of its tracker deals by 0.1 or 0.2%.

Much of this activity was due to the rise in the three-month Libor rate – that’s the interest banks pay when they borrow from each other. At one point, this rate hit 6.9% - up from 6.2% a month ago.

Ironically, the turmoil in the financial markets has also had an opposite effect: many analysts believe that the Monetary Policy Committee, which meets later this week, is now far less likely to push the UK’s base rate up beyond their current its current 5.75% limit. Some predict the base rate may even fall by the end of the year.

Whether or not the rate drops or not remains to be seen. However, fixed rates have gradually been falling again as the market prepares for movement.

This is positive news for those with a good credit history. With fixed rates coming down, there more opportunities to remortgage and find a cheaper deal.

That means it is worth keeping an eye on the best buys in our mortgage section over the next week or two.

If your credit is fair or poor, you should be aware that the after-effects of the credit crunch mean that the cost of your loan is likely to rise if you’re on a variable rate (if it hasn’t already). If you have good credit but don’t have a large deposit, your options may be more limited.

However, for both of these groups a potential base rate drop can only be positive – my advice is to use our mortgage comparison tool to compare fixed rate deals in the coming weeks, to see if better deals become available.

Finally, if you’re a first-time buyer still looking to break into the market, there is also some good news, of sorts. Property prices should remain stable for the immediate future – a welcome reprieve after annual double-digit rises in the past few years.

A period of stability should increase affordability – and allow existing homeowners to move properties much quicker.

So after a period of doom and gloom, there’s renewed hope all around, as long as you’re savvy and don’t rest on your laurels with an uncompetitive deal.

Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing.

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