On the hunt for a cheap mortgage deal

Cheap mortgage deals are rapidly becoming the financial equivalent of an endangered species. A few still survive but they are becoming harder than ever to track down.

Last week it was reported that up to 100 mortgage deals are being withdrawn a day – evidence, if any was needed, that the credit crunch is finally hitting home.

This is worrying news for many homeowners, not only those are planning to move in the near future, but also those who current mortgage deal is due to expire within the next six months.

Will they be able to get another mortgage deal? And if so at what price?

Not surprisingly, many of these homeowners are now desperately chasing down the few half decently-priced deals around. But this flurry of activity is exacerbating the problems in the mortgage market. With too many borrowers chasing too few home loans, many lenders are simply repricing these deals upwards. And those that haven’t are being swamped by applications causing some to pull out of the market altogether.

First Direct took this unusual step last week, when it announced it would no longer offer mortgage deals to new customers, although it has said this is a temporary measure, and will be eased once normality returns to the mortgage market.

It isn’t the only lenders taking such extraordinary action at the moment, as banks and building societies compete to offer the least competitive home loans.

Several building societies have asked not to appear in mortgage brokers best buy tables, so restricting the number of new loan applications. Skipton building society now charges an arrangement fee (of £799) to customers taking out its standard variable rate (SVR), while Stroud & Swindon building society demands that new borrowers pay a 0.5 percentage point premium on its SVR – giving them a pay rate of 7.79 per cent.

This looks deeply uncompetitive, particularly when you consider that the base rate is just 5.25 per cent, and is widely expected to be cut again at the end of this week.

But there is a danger that homeowners simply look at these headline rates and assume all home loans are priced so high.

There is no escaping the fact that affordable deals are far harder to get but it is important to remember that they haven’t disappeared altogether; like the Bengal tiger some still manage to survive.

For example, Savills Private Finance, the mortgage broker, points out that at the start of this week HSBC was offering a two-year fix at 4.99 per cent. This deal comes with a £1,499 fee, but is still available to homeowners with just a 10 per cent deposit.

Of course, the keenest rates invariably come with a higher fee (usually at least £1,000) and are often only available to those with a reasonable slug of equity in their home. But for those with larger mortgages – say of £100,000 or more – it is worth paying these fees to secure a lower interest rate.

The golden rule is not to panic. This could lead to homeowners simply snapping up the first deal to hand, which may leave them saddled with an expensive and unsuitable mortgage for years.

If you don’t need to remortgage at present then hold tight for the moment. Those that do need to remortgage should remember that it is taking lenders, and mortgage brokers, far longer to turn around a mortgage deal – so start looking early and apply well ahead of the mortgage expiry date if you want to avoid moving onto your lender’s SVR.

If you are concerned about being locked into a higher rate then opt for a variable rate that doesn’t lock you in for a prolonged period of time. This may mean paying a higher rate initially but it should give you greater flexibility to move again should market conditions change.

The credit crunch is now affecting many UK families – not just those who are overstretched, have poor credit records or have little equity in their homes. But by taking a cool and careful look at your mortgage, rather than stampeding lemming-like into the first deal to hand, you should ensure that your finances don’t get pushed to the brink.

By Emma Simon

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