Act fast to grab a decent mortgage

Published on Saturday 5 April 2008 16:02

THE mortgage crisis deepened last week with more lenders pushing up borrowing costs and a further 800 loans pulled, leaving homeowners fighting over less than a third of the deals available last July.

Cheltenham & Gloucester, Royal Bank of Scotland, Halifax, Direct Line, Standard Life and Woolwich are among lenders to have raised rates by up to 0.8%.

The Yorkshire Building Society is also repricing this weekend, although its zero-fee offers remain available.

A Yorkshire spokesman said: "Rather than competing to get into the best-buy tables, we are now all competing to stay out of them."

Elsewhere, First Direct stopped offering mortgages except to existing current account and savings customers, and the Co-op axed its two-year deals and said it would not participate in this market for the foreseeable future.

The Halifax is now offering a slight discount to borrowers with deposits of at least 25%, charging borrowers with less to put down more. Skipton has introduced a whopping 800 fee to customers paying its standard variable rate.

Meanwhile, figures from the Bank of England reveal that while mortgage lending has slumped, other borrowing such as credit cards and overdrafts has soared, indicating that consumers are struggling to meet their mortgage commitments, and are turning to credit cards to bridge the gap.

Outstanding balances on plastic rose to 350m in February, the biggest monthly increase since figures began in 1993.

And there is little prospect of improvement in the weeks ahead, despite a possible 0.25% cut in bank base rates when the Bank of England's Monetary Policy Committee meets this week.

Many lenders are not expected to cut their rates by the full quarter, if at all. Furthermore, as the price of trackers has risen, borrowers linked to the base rate will find themselves paying the same amount as a year ago before base rates began to fall.

Ray Boulger of Charcol Online explained: "When base rates were 5.75%, many borrowers were paying base rate minus 0.25%, giving a pay rate of 5.5%. Now trackers are priced at 1% above base. If rates fall to 5% their mortgage interest is calculated at 6%. They will still be paying more despite three base rate falls."

The other problem is that the key rate when it comes to finding mortgage finance is not base rate, but the rate banks charge each other for finance, Libor, which currently stands at 6%. A quarter-point cut in base rates will have little if any impact on this credit line.

For this reason, many commentators believe the Bank of England should cut not by 0.25% but by 0.5%. However, there is still some question of whether they will reduce rates at all.

Edinburgh broker David McMillan said: "I'm all in favour of measured cuts in base rates, but right now 0.5% would be the measured cut."

Boulger agreed: "I strongly believe the bank should this week cut by 0.5% as the only hope of having any impact on Libor, but it won't have the guts to do it."

How to beat the credit crunch

&#149 Long queues for an approval can be cut by applying to your own bank or savings institution. Banks have to do lengthy identity checks to comply with money laundering regulations. Mortgage application times can be slashed if these have already been conducted when opening a different account.

Find a good mortgage broker. Many have online application tools which can speed up applications and get approvals within a few days. London & Country and Charcol Online website applications can be made free of charge, although the companies take a commission from the lender. For a more personal service, Punter Southall charge 500 but rebate commission to the customer. Punter Southall's John Postlethwaite said: "This effectively means we advise borrowers with loans bigger than 125,000 for free."

Try lenders with good turnaround times. The Skipton says it can still turn around remortgages in 24 hours, and new applications within five to six days. Brokers report that Woolwich is currently turning around applications within 24 hours.

RBS says existing customers can have an almost immediate offer, with non-customers taking up to five working days. However applications submitted via brokers take up to 14 working days.

Lloyds TSB offers almost immediate approvals, but it takes up to 14 days for the full offer to come through.

Abbey says it can turn around full offers within seven days, while Yorkshire and Nationwide are taking up to 14 days.

HBOS can give approvals in principle within an hour, but was unable to say how long a full offer would take.

Applying online may speed up applications.

Avoid any mishaps. If your application isn't 'clean' it could get pushed to the back of the pile. Make sure your credit file is in top order and you give the lender every piece of information it requires. Once questions begin to be asked, the application may stall.