I remember the good old days. To get a mortgage was a years long process. First you went and opened a savings account with your local building society (they were the only people who could do mortgages) then you spent the next few years (yes years) saving up for your deposit, to show the building society how fiscally responsible you were.
When the time was ripe you and your husband or wife would find a nice family home and would ask the Building Society manager for a mortgage. He (sorry, very sexist back then, it was usually a he) would grill you for an hour or so. If you were a fine upstanding couple and had proven that you were financially responsible then, if you were lucky, you would be granted a mortgage. Ahh the good old days!
But then things changed. Everyone wants to own their own home, and it seems that just about anyone can offer mortgages or loans (Even Tesco! I'll have two pounds of carrots, a tin of peaches and a loan please!) People move about the country more, and we regularly look at our mortgages and review the market to make sure we are getting the best deal. Mortgages are assessed by computer now, if you fit the criteria and score enough points you get the mortgage.
Then look at today, we are trying to fight our way through the "American sub prime mortgage crisis" and the "Northern Rock" situation.
Mortgage lenders are getting nervous, and because of the nerves they are getting cautious and choosy. Northern Rock is closed to new mortgages. 100% mortgages are all but off the market, and lenders are withdrawing mortgage products.
So how far back are Lenders going to go?
We are not going to see the return of the individual mortgage interview, there are too many mortgage deals being done for that. Also individual branch managers aren't trained for that sort of decision making, and that also assumes that the lender has a branch near enough to you to make an interview possible.
But saving for a deposit and the fees is definitely coming back. 100% mortgages are only available for the select few, and several lenders have withdrawn 95% mortgages. 5% deposit is the minimum required, with 10% or more being better. Having a good credit history is gaining in importance again.
If you look at this from the lenders point of view you will see where we are going. When they lend out enough money to buy a property they have to be sure it will eventually come back. So there are two ways to collect.
The first (and the most preferable) is to make sure that the person they lend the money to will be able to pay it back, so they check things like credit history and employment history to make sure that you can pay the money back. But this isn't as reliable an indicator as it once was. You can get credit virtually on your 18th Birthday, and most people have one or two missed payments over something small. Your employment history can be just as unhelpful, changing jobs doesn't mean you are feckless and being made redundant doesn't mean you are a bad employee.
The second way to collect is to repossess the property. But repossession is an expensive and drawn out process. When property prices are rising this doesn't matter so much because the lender can always get their money back. When property prices are falling however that is not so certain.
Banks will now only look to lend to people of good credit with the ability to pay back!
What this all means is that lenders are only going to lend to people who they think can pay back the money, so watch your credit history and be sure you have a very good explanation for any blips on it. Lenders are also going to be picky about properties.
Some lenders have already said they won't lend on new build properties, and surveyors are going to be a lot more pessimistic on their valuations. You will also need a substantial deposit, if you are otherwise perfect then you may get by with 5%, but I predict that 10% is going to become the norm.
And finally the good deals are disappearing, lenders have less money to loan out, but demand for new mortgages is still rising and lenders don't have to offer good deals to get applications.
If you are moving home, or re-mortgaging to fund improvements there is still money out there for you. But first time buyers will need to develop a credit history and find a deposit. Most importantly they will need professional help to find a mortgage and to get it!
