Scottish housing market: Homeowners hit as mortgage rates rise

HOUSEHOLDS already feeling the squeeze are to face rising mortgage payments from the start of next month, with thousands in Scotland affected by the rate hikes.

The highest increases will be felt by customers of Halifax, who could typically find themselves paying nearly £200 extra a year. Halifax is the biggest provider of residential mortgages in the UK. The Co-operative, Clydesdale and Yorkshire banks are also raising rates from 1 May, blaming the weak economy and the increased cost of funding a mortgage.

There are fears people could struggle to switch to a better deal, as lenders have already started tightening their borrowing criteria, triggering a fall in the proportion of mortgages being approved. Experts warned this would make them “mortgage prisoners”.

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Consumer groups warned the rises would hit hard-pressed families struggling to keep their homes and put food on the table. Households are also facing record fuel prices and soaring utility bills.

Halifax is raising its standard variable rate (SVR) from 3.5 per cent to 3.99 per cent, affecting 850,000 homeowners across the UK. Borrowers revert to paying an SVR when their fixed rate deal ends.

The average balance of those affected is £67,500, meaning payments will increase by nearly £16.40 a month to £498.95 on a capital repayment mortgage with 15 years remaining. This equates to nearly £200 extra a year.

Someone with a balance of £100,000 would pay £24.30 extra a month, with monthly repayments going up to £739.19.

About 54,000 Co-operative Bank customers will see SVR rates go up by 0.5 percentage points to 4.74 per cent, meaning payments will typically increase by £15 a month, or £180 a year.

Clydesdale and Yorkshire banks’ SVR rate will rise from 4.59 per cent to 4.95 per cent, affecting 30,000 UK customers, whose payments will typically go up by less than £30 a month.

RBS-NatWest is also pushing up the rate on its One Account, a non-SVR product, by 0.25 points, affecting some 100,000 customers. For the majority of these, the new rate will be 4 per cent.

Borrowers who have not managed to pay off much of their loan or are in negative equity could find themselves stuck with their existing lender and unable to switch to another provider.

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They will face more probing questions to prove they can pay back loans when stricter mortgage rules are introduced from next year.

Susan McPhee, head of policy at Citizens Advice Scotland, said: “Families across Scotland are already feeling the squeeze, and our advisers are having to deal with more and more cases of people who are struggling to pay for the most basic issues, like keeping their home and putting food on the table.

“Many of our advisers are now trained to specialise purely in delivering money advice to people like those homeowners who are hit by rate increases like this.”

Ray Boulger, senior technical manager at mortgage adviser John Charcol, said the degree of equity borrowers had in their home would be the most important factor for those facing rate rises who want to switch deals.

He said: “Even if they have only got 20 per cent equity, they will still have options that will enable them to get a better deal.”

He also said even small sums of bad credit would be scrutinised by lenders, adding: “Adverse credit will almost certainly cause a problem.”

He advised those worried they may become “trapped” as lending rules tighten to overpay their mortgage, saying: “For a lot of people, the rate they are paying now will be lower than a few years ago.

“Finances will be difficult due to utility bills and petrol, but quite a lot of people will be able to afford to overpay. Doing this will increase your equity.”

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Greater restrictions are set to be placed on mortgages due to a clampdown by the Financial Services Authority (FSA) on irresponsible lending, to make sure borrowers can take out only mortgages they can afford.

The FSA’s Mortgage Market Review proposals will place new rules on mortgage advice and income will have to be verified in every application, with lenders placing greater emphasis on other regular outgoings. The FSA does not plan to implement most of the proposals before the summer of 2013.

David Hollingworth, of London and Country Mortgages, advised borrowers to get their paperwork in order. “Be sure to get the evidence to back up any mortgage application,” he said.

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