The Credit Crunch and your mortgage - what happens next?

The credit crunch has bought good and bad news for homebuyers. The good news is that house prices are sliding, bringing homes within the reach of first-time buyers. The bad news is that mortgage loan conditions have tightened up so much that only those with the largest deposits and the cleanest of credit records stand a good chance of getting exactly the loan they need.

In fact despite no change in base rate since the 0.25% cut in April, fixed rate, tracker and discounted rate mortgage costs have been rising - not for existing customers but for those looking to arrange a new mortgage or a remortgage. Inflation fears, thanks in large part to the soaring oil price, have sent money market interest rates, on which many of these mortgage deals are based, sharply higher.

Getting the best mortgage deal

If you are not a first time buyer, and are thinking of moving, you probably have some equity in your property from past years' rise in prices. So, unless you bought your current home very recently, you should still be able to move your mortgage without difficulty. While you may get less for the sale of your present home than you might have done last year, you will also be paying less for your new house.

Unless you are trading down a long way to release equity, the general fall in prices should mean that things will even out in the end. You might even find yourself paying less stamp duty if the fall in prices brings the cost of your new home below one of the tax thresholds.

Getting your foot onto the first rung of the housing ladder? Moneyextra can help you compare all UK first time buyer mortgage deals to find you the best rate.

Hard times for new borrowers

The prospects for new borrowers are not so rosy - and this applies to first time buyers, existing borrowers whose current deals are coming to an end and anyone needing to move house whose current deal is not "portable", so they will need to take out a new loan.

Over the past few years fixed-rate mortgages have been all the rage, because even with the arrangement fees that they attract they have worked out cheaper for borrowers. People who opted for short-term fixed rate deals felt they could easily find a new, and maybe even cheaper, rate when their first deal came to an end. Indeed, some people found it tempting to cash in existing mortgage deals and suffer an early repayment penalty because it could be cheaper to remortgage at a lower rate.

All that is yesterday's story. Fixed rates are creeping up again as "swap rates" - the interest rates at which banks lend to each other - have also been edging up with gloomy inflation forecasts.

Over the past few days at least 14 lenders have increased the cost of their fixed-rate deals, among them mainstream lenders such as the Halifax, RBS, Nationwide, Woolwich and Birmingham Midshires, as well as several small building societies. In fact, Nationwide raised the rates on its mortgage deals for the second time in two weeks on 16 June 2008.

Moneyextra's mortgage calculators can help you work out what you can afford.

Mortgage arrangement fees are higher

To make matters worse fees are also jumping. According to one set of research published last week, the number of fixed mortgages with high fees has rocketed by as much as 1,368% in the past 18 months, as lenders get tough on customers looking for the best deals.

Some 323 fixed mortgages - 34% of the total fixed rate mortgage market - charged application fees of £750 or more. This compares with September 2006 - before the credit crunch hit the UK - when only 22 fixed mortgage deals charged that much.

Average application fees on fixed mortgages have risen by 66% over the same period, from £517.19 in September 2006 to £860.25 now. The highest fee on record 18 months ago was £1,499 on Halifax's two-year fixed mortgage for homeowners with a 25% deposit or more.

But now the Halifax charges a fee of £3,999 on a three-year fixed deal for its existing customers who have homes worth between £500,000 and £2 million.

17 June 2008 © Moneyextra.com

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