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3 March 2008

Borrowers will find it difficult to get a mortgage

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by Kay Mitchell

Borrowers will find it difficult to get a mortgage

According to Hector Sants, chief executive of the Financial Services Authority (FSA), mortgages will be hard to obtain for borrowers with a poor credit rating – even those who have missed one credit card payment.

Mr Sants warned that cheap credit may be gone forever and said that banks will shy away from the innovative products which allowed them to package and sell on loans cheaply and will instead return to the old practices of getting to know customers and forging long-term relationships with them.

Furthermore, the Bank of England’s deputy Governor, Rachel Lomax, said the liquidity crisis for banks will persist and could intensify. Other experts believe the market is returning to a Seventies-style culture, when potential homeowners had to save for a long time with their bank or building society before proving they were worthy of a mortgage.

Melanie Bien of independent mortgage broker Savills Private Finance said lenders are assessing risk more carefully. The environment is tougher for everyone and any blip in a borrower’s credit history will hit their ability to get a mainstream loan.

Earlier this month saw a number of high-street lenders scrap the 100% plus mortgage meaning first-time-buyers will now have to find a deposit.

Furthermore, last week, Nationwide, the country’s fourth-biggest mortgage lender, announced that homebuyers should prepare themselves for a new era of mortgage lending of putting down a huge deposit. The lender is adding a further 0.2% to the prevailing interest rate, so a 2-year fixed rate deal will now be charged at 6.05% instead of the 5.85% rate charged for loans for less than 75% of the valuation.

Ray Boulger at mortgage broker John Charcol said Nationwide has effectively priced itself out of the first-time buyers market. Other lenders will follow suit which is bad news for borrowers.

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