The credit crunch has bought good and bad news for home buyers. 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.
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.
Mortgage arrangement fees are higher
To make matters worse, fees are also jumping. According to recent research, 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.
Figures from the Council of Mortgage Lenders (CML) have shown that, ironically, fixed-rate mortgage deals grew in popularity in April, with the proportion of borrowers taking out a fixed-rate mortgage up 5% to 59%, compared with 54% in March, the largest proportion since last December.
Go for a longer fix
However, anyone taking out a two-year fixed rate mortgage could be tying themselves in, not just to a deal with high fees, but to the prospect of paying out all over again in just two years' time. Darren Cook of analysts Moneyfacts, said: "With fears of base rate increases, swap at over 6.3% and rising, and lenders continuing to price more for risk, it is likely that mortgage rates will continue to follow suit. Under these uncertain times, many borrowers are looking to fix their mortgage payments and a five-year deal could become a preferred option rather than the popular two years.
"The current average rates for a two-year fixed deal stands at 6.68%, which equates to a monthly repayment of £1,029.75 on a £150k repayment mortgage. In comparison, the average five-year fixed stands at 6.66%, with a monthly repayment of £1,027.86.
"There is little difference between the initial monthly repayments of these two deals and, in my view, we have now seen the end of loss leading product pricing within the two-year market.
"With the short and medium term economic outlook not looking too promising, homeowners are less likely to move home due to falling property values and banks lowering the maximum loan to values available. There is now new scope for a borrower to possibly take a more prudent approach, to look past previously popular two-year deals and look for longer term stability."
Beware of tracker mortgages?
It seems like only yesterday that mortgage experts were telling everyone to go for tracker loans. Fixed rates were going up, but the Bank of England base rate - to which most trackers are linked - seemed likely to fall.
The experts are changing their minds, or maybe the pessimists have louder voices, as economists are now warning that the Bank of England base rate may need to increase to keep inflation under control. Opting for a tracker loan could be a bit of a gamble until the outlook for base rates seems more certain.
Bigger deposits attract the best mortgage deals
In its report the CML warned that lenders need not only to pass their own higher borrowing costs on to borrowers, but they also need to protect themselves in case house prices fall further. Therefore some lenders have been putting up the cost of mortgages for borrowers who can put down only a small deposit.
According to Moneyextra.com's most recent monthly review of the mortgage market, the average loan-to-value (LTV) being considered by first-time buyers in May was just under 82%. However, many lenders are routinely restricting borrowers to loans of no more than 75% of the value of the property they want to purchase, while some will only offer their "best" rates on 60% LTVs. There are now none of the plentiful 100% loan deals that were on offer at the start of the year.
Robin Amlôt, senior editor of Moneyextra.com, said: "First-time buyers are being pushed out of what's left of the housing market - being asked for deposits that could run to several tens of thousands of pounds."
The CML said that new buyers put down an average of 13% during the month, the highest figure since November 2004 and up from 11% in March.
