How mortgage lenders are playing the system and what it means for you

Here we look at the reasons why lenders are making it even harder to get affordable repayment plans.

Mortgage misery

Oh dear. Things are looking far from cheery when it comes to everything house. The Bank of England said last week that lenders said they’re planning to make it even harder to get a mortgage in the coming months.

They also said demand for mortgages fell to its lowest ebb on record between October and December last year – bar when Covid closed the housing market totally.

Let’s just think about this. Demand for mortgages has fallen to a record low. Has it? Has it really? What total tosh. Demand hasn’t dropped – millions of people are desperate for 
a mortgage.

Millions are sinking under the weight of mortgage payments that have gone up by hundreds of pounds a month overnight. Millions more are shelling out more than half their salary each month just to rent a box with no windows.

Of course they want a mortgage. They ALL want mortgages. What lenders mean is everyone knows they aren’t going to get a mortgage, so why bother applying? They make it sound like it’s all our fault because we’re not demanding loans we haven’t a hope in hell of getting.

What’s going on?

This is about lenders needing to make a profit to pay shareholders. Offering mortgages that people can afford would mean they make a loss.

Not offering mortgages at all is a bad look – the regulator would be very cross if they did that. What do they do then? Offer mortgages that nobody wants. Bingo. The cheek of it is, by effectively pricing themselves out of the market it’s customers who pay.

Duh. If you’re a new customer, more of your monthly payment will end up in your lender’s pocket now than it did six months ago because they’re widening their profit margins.

You won’t escape if you’re an existing customer either.

Say your fixed rate is coming to an end and you can’t find a new fixed rate you can afford. What happens? You get bumped onto your lender’s standard variable rate.

If you took a two-year fix at 1.99 per cent in 2021 and this happens to you, your monthly mortgage payment is going up dramatically.

NatWest’s SVR is currently 6.24 per cent, Santander’s is going up to 6.75 per cent on February 1, Halifax charges 6.49 per cent, Barclays is 6.49 per cent and HSBC is charging 6.29 per cent.

Nationwide’s SVR is slightly different depending on when you first took your mortgage. Unless you’re on a lifetime tracker taken pre-2009 you’re probably going to switch to its standard mortgage rate, set to rise to 6.99 per cent on February 1.

For a £200,000 mortgage on a home worth £250,000 with 25 years left on the term this is what that looks like.

By contrast, the cheapest two-year fix currently on offer is from Yorkshire Building Society at 4.7 per cent meaning monthly repayments of 
£1,134 on the same mortgage.

That deal is good if you can get it, but you’ll have to pass the criteria. If you apply through a broker, here are some of the restrictions.

• Aged 60 or retiring within ten years? You’ll need evidence you’ll earn a guaranteed income after you quit working. If you’re relying on investment income from a pension, you’ll probably find you can borrow considerably less than with a final salary pension or annuity.
• You will also have to pay off the entire loan by the time you’re 80, so you’ll need to repay over 20 years not 25 which will make monthly payments higher.
• Remortgaging a new-build and need a loan worth 80% of the purchase price? Sorry, maximum loan-to-value is 75 per cent with a new-build property. You can get up to 85 per cent on older homes, though.
• You live in a freehold flat? You don’t qualify. Studio flat? Sorry, nope. Local authority multi-storey block, unfortunately not.
• You work on a zero hours contract? No, sorry.
• Missed a mortgage, credit card, loan or bill payment in the past two years? Maybe one on a mortgage or two on a credit card. Possibly.

I am not picking on Yorkshire Building Society. Anything but. Frankly their criteria is WAY less restrictive than many lenders’ and they’re offering a competitive rate. I like Yorkshire Building Society.

What I am doing, however, is 
pointing out the very harsh reality being faced by millions of homeowners right now.

I won’t lie, it’s bleak if you find yourself in this sort of position.

That said, there is a silver lining. What all this means is that lenders are battening down the hatches as we brace for a prolonged recession.

In theory, mortgages will get stomach-churningly more expensive. In reality, if you talk to your lender before things go pear-shaped – even after they go pear-shaped – they’ll find a way to help you.

They might extend your term, move you to interest-only, accept partial payments for an agreed period – whatever it is, they’re very unlikely to ask you for the keys back.

It might seem bamboozling, but their reluctance to lend on new deals is so they can afford to help their existing customers if they’re struggling.

Go figure.

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