by Mark Johnston
Getting a mortgage these days is not as impossible as some experts would have us believe, the number of products may have fallen from around 15,000 to approximately 5,000 but there is still an adequate number of appealing deals to choose from.
With threats of a rise in the bank of England base rate now receded, leading economists are predicting that there will not be a rise till at least 2013. Experts say that with this news lenders are ‘clambering over themselves’ to out price each other and after the recent move from Barclays to cut their rates other major lenders will now have to consider their position.
However figures published by the Council of Mortgage Lenders (CML) and the bank of England show that the number of mortgages taken out has fallen dramatically, lending in August 2011 plunged £1.9 billion to £11.4 billion the least for a decade, and they have not completely stopped though. Although it should come as no surprise that lenders and borrowers alike are cautious amid fears of rising rates and plummeting house prices.
Lenders have tightened up their lending criteria considerably and are only lending to people they consider to be low or fairly low risk. The reality today is that if you have a good credit history, a good job and a deposit of at least 20-25% then obtaining a mortgage is no problem.
Most lenders are now much less flexible in their attitude to new prospective borrowers and even existing ones who want a fresh loan. As a result of this totally sound borrowing proposals are being turned down.
It is estimated that as many as one in five people applying for mortgages do not meet today’s strict lending criteria and will experience difficulty in getting a mortgage because of poor credit.
Many lenders now will automatically run a credit check on anyone and everyone applying for a mortgage and something as minor as a missed payment on a book club could mean they have a poor credit score.
The amount you can borrow is no longer simply linked to a multiple of income, but on affordability basis linked to credit scoring. The Santander states that they consider several factors in a mortgage application including type of property, financial circumstances and the ability to afford payments. While the Natwest says it uses credit scoring and credit reference agencies, with a stringent affordability assessment.
British consumers have racked up a record personal debt mountain of more than £1 trillion. Industry experts believe that with this in mind a growing number of borrowers will be unable to cope with these debts and will as a consequence have their credit reports tarnished.
Analysts believe that the sub prime mortgage market (people with bad credit) will grow faster than the conventional mortgage market due to the rising number of people with financial difficulty.
The days of simply chasing the cheapest rate, armed with a passport and a smile are now long gone.
The lesson here is simple; borrowers should not expect that once they have their deposit saved, identified a property, made an offer and approached a lender with apparently attractive terms, that their problems are over more often than not they are only just beginning. Such is life in the 2011 mortgage market.
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