Tuesday, February 26, 2008

Nationwide squeezes all but the most cash-laden buyers

Nationwide squeezes all but the most cash-laden buyers
by Rebecca O'Connor 26-02-08

Mortgage borrowers unable to muster a big deposit have become the latest victims of the credit crunch after Britain's biggest building society effectively shut its doors to all but the most cash-rich buyers. Nationwide has told customers wanting a loan for more than 75 per cent of a property's value that they will pay higher rates of interest to reflect the increased risks involved. It raised interest rates on deals above that threshold by 0.2 percentage points last week, blaming higher mortgage funding costs and a cooling housing market for the decision.

Experts gave warning that the move would hit cash-strapped first-time buyers the hardest and could be a sign of further tightening of mortgage lending by other banks. Nationwide's cut penalises even existing customers who want to remortgage. The average deposit in the UK, at 20 per cent, is also below the Nationwide threshold. Melanie Bien, a director of Savills Private Finance, the mortgage broker, said: “We have seen nothing on the same scale as Nationwide. You now have the scenario that someone with a 20 per cent deposit, which is quite sizeable by anyone's standards, is being penalised with a higher rate of interest.” On a £150,000 Nationwide home loan a borrower would now be forced to save £37,500 to get its most competitive rate of 5.68 per cent. Before last Friday the same borrower would have required a deposit of only £15,000, or 10 per cent, to obtain the same rate.
Jonathan Cornell, director of Hamptons International Mortgages, the broker, said: “This is silly money and a fairly unrealistic expectation of struggling first-time buyers, who have relied on mortgage deals allowing them to borrow in excess of the asking price. It comes when lenders are cutting their maximum loan to values in the light of credit crunch fears and adds further cause for concern for would-be homeowners.”
The change came as figures published yesterday by the British Bankers' Association revealed that mortgage approvals for new home purchases fell by a third in January, compared with January last year, sparking fresh fears of a housing market slowdown.
It follows a spate of similar attempts by other banks to cut risk and boost profit margins by changing their lending criteria. Abbey, the third-biggest lender, increased interest rates on two-year fixed-rate loans covering 75 per cent and 90 per cent of a property's value last month by 0.1 of a percentage point. Alliance & Leicester, West Bromwich and Britannia building societies have cut maximum lending limits in the past few weeks from 95 per cent to 90 per cent, and six banks, including Northern Rock and Alliance & Leicester, withdrew from the 100 per cent-plus mortgage market last week.
Although Nationwide will still offer loans for up to 95 per cent of a property's value, these will carry a much higher rate of interest, at 6.32percent for a two-year fix. On a £150,000 loan, the difference in cost between the Nationwide deal and the present market best-buy from Giraffe Home Loans is £708 a year.

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