HOMEOWNERS have been warned that even borrowers with big deposits, high
incomes and good credit records may be turned away as the mortgage freeze
deepens.
Nationwide, Britain’s biggest building society, refused a mortgage request
from a long-standing customer even though he had 50% equity in his £1.4m
home, a six-figure income and a clean credit record – just because he had
become self-employed.
Last week, as the squeeze intensified, Nationwide’s lender for the
self-employed, The Mortgage Works, pulled out of the market leaving such
borrowers with few options.
Until now, the crunch has hit mainly those with small deposits and imperfect
credit records, but lenders are further tightening their criteria. Halifax,
Britain’s biggest lender, will raise its trackers and fixes from tomorrow,
targeting people with small deposits.
A two-year fix for remortgagers with a 5% deposit will increase by 0.45
percentage points to 6.79%, adding £676 a year to the cost of a £200,000
loan. However, borrowers with deposits of more than 10% will see smaller
increases and those with more than 25% could even see rates fall slightly.
Halifax also lifted rates on its two-year trackers for borrowers who have a
10% deposit by 0.25 points to 6.74%, eclipsing any benefit if the Bank of
England cuts interest rates to 5% next week, as expected.
Ian Cordwell, 44, left his job as managing director at a major insurer to
become a self-employed consultant last year but his salary remained the same
– a good six-figure sum.
He decided to move from a £1.4m house to a £1.3m home in Dorset but, despite
owning 50% equity in his property and wishing to pay off £100,000 when
moving, Nationwide refused to allow him to remortgage.
Cordwell said: “I couldn’t believe the illogi-cality that Nationwide adopted,
of preferring me to stay with a larger mortgage rather than allowing me to
reduce my mortgage without damaging their security. I was dumbstruck.” Ray
Boulger of broker John Charcol, said: “Home loans will still be available
throughout the summer.
However, people are going to have to get used to more expensive deals. Those
we would not have expected to struggle could find they fall into that
category now. This includes the self-employed – even those with good
deposits and incomes who would have had no problems a few months ago.”
Nationwide said: “Our standard requirement is that a self-employed applicant
must have the evidence from the last two years’ trading to confirm their
income. Specialist lenders may well cater to applicants who cannot provide
this.”
However, the self-employed are likely to find getting a mortgage harder in
future after Lehman Brothers, the US bank behind Alliance & Leicester’s
self-certification loans, quit the UK market last week facing billions in
sub-prime losses. Lenders are also clamping down on borrowers with offset
mortgages, often taken out by people who overpay each month to clear their
debt quicker. They are an easy target as they are generally on variable
rates, which can be raised at the lenders’ discretion.
Last week, NatWest, part of Royal Bank of Scotland, raised its offset mortgage
rate by 0.25 points to 6.45% even though Bank rate has been on hold and is
expected to fall.
Wealthy borrowers with big bonuses are not immune. Cheltenham &
Gloucester, part of Lloyds TSB, has instructed brokers that borrowers with
bonuses of more than £100,000 should be referred to underwriters and will
need to provide their bonus history for the past two years. They will also
need to provide details of anticipated bonuses, including dates and the
method by which bonuses are paid – that is, shares or cash.
Simon Tyler of Chase de Vere, a broker, said: “This is going to create
difficulty for many City workers as they often do not know precisely when
they will get their bonus payments.”
The middle-class mortgage freeze comes as lenders pull their best deals with
unprecedented haste. First Direct’s fixed-rate loan at 4.75% and the Coop’s
tracker at 5.24% are no longer available and have been replaced with a 4.99%
two-year fix from HSBC and Britannia’s two-year tracker at 5.85%.
Alliance & Leicester is raising rates on fixes and trackers by up to 0.15
points.
Direct Line, which has scrapped all deals except for a two-year fix, upped its
rate by 0.74 points from 5.95% to 6.69% last week, adding £2,202 to the cost
of a £200,000 loan.
However, Bristol & West has a five-year fix for the self-employed at 7.79%
with a £999 fee and there is a two-year fixed deal from First National for
the self-employed with a 10% deposit at 8.39%.
Top tips on securing a deal
WITH the mortgage meltdown getting worse, we offer some tips on finding a good
deal.
1 Book now Borrowers coming to the end of cheap mortgage deals within
the next six months should start looking now. You can generally reserve a
rate between three and six months in advance.
2 Check your credit rating Don’t assume your credit file is clean. You
could have a black mark against you for a misdemeanour years ago, including
just one missed payment.
3 Once you have found a good deal, act fast There is almost no notice
from lenders before a deal is withdrawn from the market at the moment.
4 Apply online The process will generally be quicker online –
although this is not normally an option for buy-to-let applications.
5 Make sure you can prove your self-employed income If you have one
full year’s accounts and have been trading for 18 months you should be able
to get a mainstream loan. Anything less and you will have to go for a higher
self-cert deal.
6 Fix your offset Offset loans are handy for those who keep large
savings balances as you can use the interest earned on deposits to offset
the interest you are charged on your mortgage.
However, steer clear of variable rate offsets as the lender can increase the
rate at any time, as NatWest borrowers discovered last week. The best offset
fix is from Leeds building society at 6.45% for three years.
7 Build up a deposit If you have a deposit of just 5% and you are a
first-time buyer, the best rate on offer is from Cheshire at 5.49%. Those
coming up to remortgage should check if they have enough equity in their
home to secure a new deal.
Speak to an estate agent about improving the value of your property.
8 Avoid the SVR – even if you don’t know what to do As
fixed-rate and tracker deals become more expensive, borrowers with small
loans may gravitate towards the SVR as a “wait-and-see” option. Lenders can
increase their SVRs at will. Last week, Skipton building society added a
£799 fee to its standard variable rate deal offer at 6.7% for new borrowers,
which expires tomorrow.
9 Get a tracker if you want to wait and see A better wait-and-see
option is a tracker with no early redemption charges, such as HSBC’s at
5.63% for those with a 10% deposit. Some tracker deals also allow you to
drop the tracker and lock in to a fix. Nationwide and Scarborough offer
trackers with a drop-lock option, that allows borrowers to switch to any
fixed rates offered by the lenders in future.
10 Explore all the options If you have missed credit-card or mortgage
payments or have acquired a county court judgment, your options are limited
as this will affect your credit score according to the tests used by most
mainstream lenders.
However, brokers might be able to help so you don’t have to be classed as
sub-prime.
Halifrax cashes in
HALIFAX, Britain’s biggest lender, admitted last week that the credit crunch
will boost its margins at the expense of customers.
Finance chief Mike Ellis said profit margins at its consumer division should
rise in the coming years as it passes on higher funding costs to customers.
Last week there was evidence this is already happening. The bank increased
the rate on its two-year tracker for some borrowers with a 10% deposit from
6.39% to 6.74% — a 0.35-point increase.
However, the cost of funds in the money markets, also known as Libor, is 6% —
so Halifax is charging an extra 0.74 points on top, or £1,480 a year on a
£200,000 home loan. Two-year tracker deals on new purchases at Halifax are
1.75 points higher than the last time Libor was at 6%, in July 2007.
I see no problem with this stance. The man has no guarantees as a self-employed person, is more likely to succumb to market forces in a down-turn and should be treated like any other first-time self-employed borrower.
What is wrong is that banks and lenders have chosen not to pursue this risk-averse position over the last 10 years or so, and now the government, for lack of regulation intends on making us all pay for this. Just watch as your pound devalues. Another fine job at economics by a labour government me thinks!
Duncan, Wokingham, Berkshire
Halifax will pass on costs, but its profit margins will rise?
Doesn't that mean it's passing on MORE than the increase in costs?
And so it's not the credit crunch that's increasing costs for customers (well, OK, some of it is), but the Halifax is also making more profit?
Jon, Winchester,
After years of slack lending banks have now decided to return to a more conservative approach to lending. Well done Nationwide.
Costas, Cyprus,
Tim has a point.A similar law already exists in France.If a lender offers you credit or a mortgage where the monthly payments are more than 33% of your take home pay and you default,its their loss as they cannot enforce payment by the courts.You must also provide 3 months payslips and 3 months bank statements plus last years tax declarations before they will even consider you for a mortgage.Stamp duty is also around 8%.
stephen hulton, eure, france
A self employed consultant with a six figure salary can just become another statistic in the unemployment figures if the UK goes into recession; Natiowide's reasoning as well me thinks.
john, milton keynes,
Its about time all these speculators were pushed out of the market, by that I mean all the banks and people lending money they haven't got and people buying property with money they can't pay back.
I I was prime minister, I would table a law that would mean that for a mortgage on a single property, you could only take one salary into consideration, at 2.5x that salary.
Then offer mortgages through the post office at fixed interest rates of 5% for the life of the mortgage. Then make reposession of properties so difficult for the banks that they were not interested in the market anyway.
Tim, Dundee, Scotland