Halifax has increased mortgage rates for borrowers with smaller deposits in the latest sign that lenders are distancing themselves from riskier borrowers.
The bank raised rates by an average of 0.14 per cent for borrowers with loan-to-values of between 75 and 90 per cent. Those borrowing less than 75 per cent of the value of their property will benefit from slightly lower rates.
Denise Blake, senior mortgage analyst at Moneyfacts.co.uk, said: “Lenders have to balance out the risk they are taking on, so it’s no surprise that Halifax is looking to attract the low risk borrowers.”
Mortgage brokers expected more lenders to start putting premiums on riskier borrowing. This could be bad news for first-time buyers and homeowners with little equity in their property.
“Anyone looking for a high loan to value is going to have a much harder time than they did six months ago,” said Blake.
Lenders have this week continued to withdraw mortgages from the market.
By Wednesday there were 8 per cent fewer deals than at the end of last week and by Friday 22 per cent of last week’s deals had disappeared, according to Moneyfacts.co.uk. There are now just 4,270 mortgages in the market, compared with 15,599 last July.
First Direct this week suspended new mortgage lending, while Cheltenham & Gloucester has increased rates four times in recent days, according to brokers.
More rate increases are expected next week, possibly from lenders such as HSBC, Alliance & Leicester, Nationwide and Woolwich.
“It is rather a vicious circle,” said Melanie Bien at Savills. “As soon as one lender reprices upwards, the rest have to follow to avoid being swamped.”
Jonathan Cornell, managing director of Hamptons Mortgages, believed any lender that had not repriced rates this week would probably do so next week. This could include HSBC, which is still offering a very competitive two-year fixed rate.
“One questions how long HSBC can offer 4.99 per cent fixed for two years as it is 20 basis points below the next best deal,” observed Bien.
Lenders’ ability to offer attractive rates is restricted by the gap between base rate and Libor, the rate at which banks borrow. Base rates are likely to be cut next week from 5.25 per cent but as Libor has edged up to 6 per cent new mortgage rates may not necessarily benefit.
Average rates charged on new home loans have not changed much over the six months since the start of the credit squeeze despite cuts of 50 basis points to the base rate and a bigger decline in two-year swap rates. Rates on new fixed-rate mortgages fell only five basis points to 5.88 per cent in February and on average are higher than they were last August.
Lower rates are available but these tend to have large fees. Newcastle Building Society, for example, is offering a 5.15 per cent two-year fix with a 2.5 per cent fee.
Brokers expect further lending criteria changes, in addition to the rate hikes.
“It won’t be long before it will be impossible to borrow above 80 per cent on subprime, for example,” said Bien, “while buy-to-let lenders are rapidly reducing their loan-to-values to a maximum of 75 per cent.”
Less creditworthy borrowers could have most difficulty. Lehman Brothers this week closed its subprime divisions to new business.
“With rates increasing by the day, higher loan-to-values, product withdrawals and tightened criteria, all borrowers are being forced to navigate a mortgage minefield,” said Cornell.
The dearth of mortgage deals is further slowing activity in the housing market. The number of mortgages approved for house purchase fell from 74,000 in January to 73,000 in February, nearly 40 per cent lower than the same time last year.
