Beating the mortgage crunch may seem like an uphill task for many homeowners but industry sources insist that it always pays to seek independent advice from a mortgage broker as they can advise on products from the whole of the market.
Currently, homeowners and lenders are raising their rates in the wake of Bradford & Bingley crisis as the mortgage market continue to suffer a clampdown.
Market experts forecast that total mortgage lending could be halved over the year.
This week has seen both Alliance & Leicester and Nationwide have increased their fixed rate mortgages by up to 0.25% and 0.3% respectively. Coupled with a high LIBOR, the rate at which banks lend to one another means that the future is poor for the estimated 1.4 million people whose fixed-term deal will draw to a close this year. It seems that April's interest rate cut has done little to allay their fears.
The average homeowner with a £150,000 mortgage will now have to pay between £60 and £120 a month extra for a new deal. For this reason, analysts believe that it is the best time for people to organise their finances.
However, it is not all gloom, according to market analysts; there are still some good deals out there. HSBC is currently extending its Rate Matcher mortgage to all UK homeowners. For borrowers and properties that meet the lender's criteria it will match any expiring fixed rate above 4.54%.
The arrangement fee the customer pays will depend on the rate and the size of the loan. However, the deal is only available directly and not through brokers.
Market analysts are suggesting that in order for borrowers to improve their chances of getting a good mortgage deal, they will need to reduce their loan-to-value (LTV) ratio as much as possible. Reports show that many lenders are now only offering their best rates to people borrowing less than 75% of the property's value.
First-time buyers would be well advised to ask their parents for help with building a deposit and put down as much as possible. On the other hand, those who are remortgaging and have savings may need to plough some of them into your mortgage to reduce the LTV.
According to industry sources, first-time buyers who typically need to borrow a higher proportion of their property's value than remortgagers, are currently finding that good deals are more difficult to secure than ever, with many 100% loans disappearing in recent weeks.
However, the good news is that some lenders will still lend 100% of a property's value if a parental guarantor steps in to help. This will enable a borrower to take on a bigger mortgage because the lender takes their parents' income into account when deciding how much they can borrow. The parent can then be called upon to repay the debt if their offspring defaults.
Market experts further recommend that homeowners who are set to remortgage this year should start thinking about it now as some lenders will allow a product to be reserved for up to six months in advance.
Other measures that could help homeowners include taking advantage of the Government's Rent-A-Room scheme which means they can receive up to £4,250 in rent each year before paying any tax on this income. In other words, homeowners with spare rooms in their property should consider taking in a lodger as it will boost their finances.
Additional suggestions for homeowners whose mortgage repayments look set to shoot up when their fixed deal expires, is to cut down on their spending.
Experts also recommend that homeowners take time to log on to a comparison site such as uSwitch or Moneysupermarket to make sure that they are getting the best deal possible on energy, phone and broadband bills.
It also pays to make a budget and stick to it, they add, “you'd be surprised how much you can save by cutting out takeaway coffees, unused gym subscriptions and unnecessary taxi journeys.”
In conclusion, they add that in order to secure a competitive mortgage deal, a good credit record is vital because lenders are getting fussier about who they lend to in the wake of the credit crunch.
Alternatively, homeowners could opt for mortgages where repayments go up or down in line with changes to the Bank of England base rate, also known as trackers.
