subject: Lenders Continue To Increase Mortgage Interest Rates [print this page] A good time is over for homebuyers as lenders continue to increase mortgage interest rates and reducing the choice of loans. Even banks also held off repossessing homes, even where borrowers were late with payments, in what was called forbearance. Halifax, Bank of Ireland, the Co-op and other lenders have also increased standard variable rates, but the cost of the average two-year fix has gone up by almost ten per cent since last October.
After the banking crisis of 2007 and 2008, rates plunged to record lows. It was a lifesaver for borrowers with no equity and where household incomes were squeezed. But after five years the collapse of Northern Rock, experts warn that the situation is about to get tougher for mortgage payers. These raise tough restrictions on qualifying for mortgages. These are expected to be tightened further as new rules are introduced by the Financial Services Authority that will exclude more borrowers from new loans and create mortgage prisoners who cannot afford to remortgage. Most of the vulnerable are the hundreds of thousands of borrowers with interest-only loans. Their monthly mortgage bills are lower because they pay just the interest, but nothing towards reducing the sum borrowed.
An announcement was made by NatWest last month that it would restrict interest-only lending to those with a minimum annual income of 50,000 and who have had a current account with the bank for at least three months. Other crackdowns have been announced by Santander, Nationwide, Leeds and Coventry building societies, where at least 50 per cent equity is required from interest-only borrowers. Before the credit crunch, lenders did not ask how borrowers intended to pay off the capital loan. The assumption was that borrowers could always sell the property. But now that house prices have fallen, lenders are asking tough questions now. Apply with 12 month loans and get quick finance.
They will not accept the sale of the home or the expectation of an inheritance, for example, as suitable repayment vehicles. Some lenders including Halifax and Woolwich are becoming even tougher. For example, if borrowers tell these lenders that they intend to use equity Isas to pay off their loan in future, the lenders will assume the Isas will produce zero returns, regardless of the length of time invested. Now, it is becoming increasingly difficult to borrow on an interest-only basis resulting thousands of borrowers getting trapped and unable to remortgage elsewhere.
