Re-Mortgaging During The Credit CrunchPosted on: 17 July 2008 by Gareth Hargreaves
How the credit crunch is likely to affect those looking to re-mortgage.
1.4 million people are expected to re-mortgage their homes this year, when their existing short term fixed rate deals expire.
The news for them is that finding a mortgage deal could be more difficult now.
The average shelf life of a mortgage deal is down from 30 days a year ago to just 11 days now.
Last year, there were over 15,000 mortgage products on offer and customers were spoilt for choice. Providers kept their mortgages on their books on average for 30 days at a time.
Now there are just 3,814 products available. According to Moneyfacts Mortgage Metrics, the average new mortgage is around for only 11 working days. Last month when Bank Base Rate fell by 0.25%, new deals came and went within a staggering six days.
Trying to plan ahead to make the transition between mortgage deals less financially traumatic, as many have done, may have been in vain.
Darren Cook, Head of Press at Moneyfacts, says, "Unfortunately, until the current market readjustment is complete, the ability to time the mortgage market has become more of a lottery than an art, with the majority of today's better deals expected to have disappeared by this time next week."
Banks and building societies are being forced into these measures due to current market uncertainty, he believes. "As a consequence, they are reducing the level of funds on offer, even though demand has not reduced."
"Lenders with products available are experiencing unprecedented levels of demand, which impinge on their back room staff's ability to cope and on the company's capacity to provide a good level of service. To avoid this, lenders are choosing to withdraw their products quicker than before in order to clear their demand bottlenecks."
Re-mortgagers should first access a reliable mortgage data website, to record and continually monitor between 10 and 20 suitable mortgage products across the market. This will enable them to see the potential difference in cost between their old and new deals and its affect on their overall household budget, so they have the confidence to make an informed choice.
In some cases, borrowers will struggle to remortgage and may end up paying significantly more once they switch to the lender's standard variable rate, according to Peter Williams, Intermediary Mortgage Lenders Association (IMLA)'s executive director.
With the current rebalancing of the market, it's becoming more difficult for non-standard borrowers to secure a loan to meet their circumstances. Williams advises that it is important that such borrowers turn to a broker who has the expertise and knowledge of the market to help them find a suitable product.
Those looking to re-mortgage may also have a shock as they are faced with high mortgage application fees.
The number of fixed mortgages with high fees has rocketed by as much as 1,368 per cent in the past 18 months as lenders get tough on customers looking for the best deals, according to analysis by MoneyExpert.
In September 2006, before the credit crunch hit the UK, only 22 fixed mortgage deals charged application fees of £750 or more. That figure has since grown to some 323 fixed mortgages.
Average application fees on fixed mortgages have risen by 66 per cent over the same period, from £517.19 in September 2006 to £860.25 now.
The highest stipulated fee 18 months ago was £1,499 on Halifax's two-year fixed mortgage for homeowners with a 25 per cent deposit or more. Yet now the Halifax charges a fee of £3,999 on a three-year fixed deal for its existing customers who have homes worth between £500,000 and £2 million.
"Anyone looking to remortgage or to buy a property for the first time will need to recalculate their options if they haven't factored in fees," explains Sean Gardner, director of MoneyExpert. "The days of fee-free mortgages are over and frankly getting anything under £1,000 is something of a coup."
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