Credit crunch
Bank of England provides respite

The Bank of England took the unusual step of agreeing to provide emergency funding to Northern Rock to allow it to carry on funding, although the former building society has reassured its customers that their savings deposits are safe. Unlike many banks which raise most of their money from customer savings to fund its mortgages, Northern Rock raises money via the inter-bank market. But the credit crunch effectively closed this funding route, causing the bank extreme difficulty.

The events of the credit crunch hit mortgage market witnessed other lenders move to increase rates, as the money markets led them to tighten their lending policies. The rate increases were due to the soaring cost of money on the wholesale markets, as the three-month Libor rate increased. This is the interest banks pay when they borrow from each other.

Anyone coming off a fixed-rate or discounted-rate has found that the cheapest schemes are significantly higher than their previous rate.

It is estimated that about 800,000 opted for fixed deals two years ago, when rates were historically low. At the time it was possible to secure a two-year deal for as little as 4.29 per cent.

Today new borrowers may have to pay more, particularly if they are asking for a loan which involves higher income multiples, or if they have a very small deposit. The Building Societies Association has said that different classes of borrowers could in the future find themselves paying different rates depending on their risk profile.

The basics
If your mortgage offer is coming to an end, your first port of call is your existing lender. See what they will offer. If you have been meeting your mortgage repayments, they may not reassess your credit rating.
Where your existing lender is no longer competitive, it’s time to move elsewhere.

Do everything you can to improve your credit history, such as paying off any debts, or getting on the electoral register.

Check your credit history regularly, so you become aware of and can challenge any unhelpful or incorrect entries

If possible increase the equity in the property by using savings to reduce the size of the loan.

Study the full cost of a mortgage, paying particular attention to arrangement and other fees when comparing deals.

If you would like to find out more, please email or contact us for further information.

This article is for your general information and use only and is not intended to address your particular requirements. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without appropriate professional advice after a thorough examination of their particular situation. Your home may be repossessed if you do not keep up repayments on your mortgage.

Article date: 09.07