In another week of turbulence in the mortgage market, borrowers watched helplessly as rates on loans for the purchase of homes rose dramatically, with at least 14 lenders raising their rates. Halifax and RBS were among those whose decision would largely affect the faith of many people dreaming of getting on the mortgage ladder – especially those eyeing the fixed rate deals range.
A direct fall-out of this development is that the average cost of a two-year fixed rate for a 90 per cent loan has shot up to 6.75 per cent. And with this happening amidst increasing withdrawal of deals and the refusal by lenders to give out loans to borrowers, house purchase rate has declined sharply. This in turn has had a major toll on house prices and mortgage brokerage as an industry. Mortgage brokers Chase de Vere confirmed this, as Aaron Strutt said: “Things have not been this busy with the withdrawal of deals for a month or so.”
While figures from the Council of Mortgage Brokers (CML) said that fixed rate mortgages have recently become more popular with borrowers, the sad tale is that the deals are increasingly getting too expensive for borrowers to afford.
Although the CML revealed they accounted for 59 per cent of all new loans in April, which is the highest seen this year, the rising costs of this range of home loans gives a serious cause for concern. Analysts are wont to blame the rises on the cost of borrowing funds on the market. For example rates on the Swap market have continued to rise and lenders have had to struggle with this in addition to the scarcity of funds as the demand for home loans increases. In the space of 10 days swap rates rose from 5.80 per cent to 6.3 per cent. This prompted experts to predict that two-year fixed rate mortgages could hit 7 per cent very soon.
“If the recent rise in swap rates is sustained, two-year fixed mortgage rates could approach 7 per cent in the next few months. With demand in the market already so weak, that would represent another huge blow to the housing market outlook,” said Ed Stansfield, a property economist at Capital Economics, a forecasting house.
Mr Standsfield’s suggestion, a reflection of the reality as it is, would send cold shivers down the spine of many intending borrowers and even lenders. Yet it is the simple truth that must be acknowledged, somehow.
While borrowers are busy bemoaning their predicament, lenders are, however, fine-tuning strategies that would help them overcome the impacts of the credit crisis on them. Interestingly, one approach is to make sure they are not dragged down by risky borrowers.
Recently, the CML advised them to make sure they protect themselves in case the trend, as determined as it is, leads to further collapse in house prices. This would, obviously, have a number of implications. Lenders, perhaps heeding the warning, have been hitting back at suspected risky borrowers by introducing increases in borrowing costs as far as borrowers with small amounts of deposits are concerned.
This situation is best understood if the conditions imposed on borrowers with smaller deposits are compared to the ones those with larger deposits face. An example of such differential treatment is that those wanting to borrow 75 per cent or less of the value of their property, and who are considered a lower risk to lenders have, sometimes, had the cost of new loans reduced for them.
This is just one of the travails of borrowers in the midst of credit crunch. Many more may unveil as the crisis protracts.
