Recession remortgaging proving a struggle

Posted on: 13 July 2009 by Gareth Hargreaves

Homeowners looking to remortgage are finding it increasingly difficult to get a new loan because of falling house prices, job losses, salary cuts and tighter lending conditions.

While interest rates are historically low, the general consensus is that the Bank of England base rate is likely to start moving up again soon.

Fixed-rate mortgages have become more expensive in recent weeks leading many people to try and lock in a low-rate deal now.

However, with banks and building societies requiring larger deposits and house prices having fallen by an average of 9% in the last 12-months, shrinking home equity is making remortgaging harder.

Many workers are being forced to take pay cuts or reduce their working hours and many are struggling to remortgage the amount they currently have outstanding on their home loans.

"Even those who earn the same now as they did when they took their current mortgages out two or three years ago may find it difficult," said Louise Cuming, mortgage expert at

"This is because banks that would lend up to five times salary in the past are now lending just four times, if that."

Who is affected?

As well as homeowners struggling to make ends meet and those hit by negative equity, high-net worth workers looking for big mortgages are also being turned down because banks and other lenders are refusing to take their bonuses into account when deciding how much to allow them to borrow.

Wealth manager HFM Columbus claims the restraints on borrowers of this kind are threatening to seize up the top end of the market altogether.

"The reality is that most borrowers in this high end bracket are City workers still to a large extent reliant on their annual bonus," said Gary Festa, a mortgage specialist at HFM Columbus.

"We have had clients whose basic salary has not changed for 10 years. But even though they have received bonuses every year - including 2009 - some banks are saying that they will only lend on the basic salary."

First-time buyers are also being hit by the need to save a deposit of 25% or more to secure a cheap deal.

"First-time buyers have been having to find big deposits for about 18 months now. And even those looking for smaller mortgages may find it harder to convince banks to lend to them on the basis of overtime earnings or bonuses," said's Cuming.

So what are the best deals for people remortgaging?

Leeds Building Society has the best two-year fixed-rate deal at 3.4% with an arrangement fee of £999. Alternatively, Chelsea Building Society has a two-year fix at 3.45% with a fee of £995.

The Leeds deal requires equity of at least 25%, while the Chelsea offer is only open to those with a deposit of 35% or more.

Cuming's advice to those concerned they may face problems due to falling house prices or income is to shop around the whole market, as lenders' criteria does vary.

"It is a good idea to talk to a professional adviser if you are worried as the more you are declined, the worse it will be for your credit rating," she said.

Meanwhile, for very large mortgages of £1 million or more, HFM Columbus believes that foreign investment banks offer greater freedom than UK banks at the moment.

"We have arrangements with some of the foreign investment banks that have not turned their back on the UK mortgage market," said HFM Columbus' Festa.

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