The Chilling Consequences Of The Credit Crunch

More on the credit crunch.

This article has already been sent to Fools as part of our 'Cracking The Credit Crunch' email series.

You might not have noticed the impact of the credit crunch on your finances yet. I know I haven't. But many people have. The first to notice it have been people with mortgages, or people who are borrowing money on variable rates (i.e. the interest rate they're paying isn't fixed).

Here, I shall introduce several relevant statistics that have been collated by debt charity Credit Action in its latest monthly report, which you will hopefully find interesting. I'll also accompany each statistic with a related money tip and/or commentary, to see if we can't make the figures look a little less horrendous. Here goes:

Three out of four people don't understand the difference an extra 1% on mortgage rates will mean

(Credit Action's source: Nationwide.)

So let me explain. If you're currently paying 5.5% interest and you have a £100,000, 25-year repayment mortgage, you're paying about £610 a month. If your mortgage is interest only, it's £460 a month.

However, if that rate jumps to 6.5%, you'll pay about £680 a month on a repayment mortgage and £540 a month on an interest-only mortgage. The increase then is £70 to £80 every month, or £840 to £960 extra every year. That's the difference 1% makes.

If you want to see what difference it'll make to your own mortgage, you can use our mortgage calculator. Type in your details and then add an extra 1% to see how much more you'd pay. I hope it's not too frightening!

4,000 fixed-rate mortgages will come to an end today

(Credit Action's source: Financial Services Authority.)

That's about 1.4m fixed-rate mortgage deals ending over the next 12 months.

If you took out your current fixed-rate two or three years ago, you'll find a new deal more expensive. When you remortgage to a new deal, you're likely to pay perhaps 1% more these days.

You can compare mortgage deals at Fool.co.uk to find out about the current rates on offer.

If you don't negotiate a new deal when your fixed rate expires, you'll revert to your lender's 'standard variable rate', which is usually around 2% higher than the most competitive deals on offer in the marketplace.Your mortgage interest rate is likely to leap up by 2%-3% (not just 1%)! So on average, you'll pay around £210 more every month, says Credit Action (£2,520 a year). My rough sums are in line with this, too.

But:

Mortgage lending declined to an estimated £24 billion in February

(Credit Action's source: the Council of Mortgage Lenders.)

This is down 6% from February last year. Also, Credit Action mentioned Bank of England data, which found that 73,000 new mortgages were approved this February. That is the lowest monthly figure since July 1995.

Furthermore:

There are just 4,700 different home-loan deals available, down from 15,600 last July

(That one's direct from the BBC, not Credit Action.)

Mortgage lenders are withdrawing products because they have less money to lend, and because they are becoming more choosy about whom they lend to. With fewer products comes higher prices.

You might consider overpaying on your mortgage while your rate is low, or saving a pot of money in case money gets too tight when you remortgage and the cost goes up.

If you're struggling to get a good deal, redouble your efforts. Drop into all your local banks and building societies, and contact a whole-of-market broker.

It's possible to book a new mortgage deal up to six months in advance of your current rate expiring. As the most competitive deals are disappearing fast, this could be worth doing.

> Compare mortgages.