Mortgage Borrowers Are Doomed!

Why even mortgage brokers are struggling to find mortgages for their clients...

A massive two-thirds of brokers have been unable to source a mortgage for clients in the past two months, according to the Intermediary Mortgage Lenders Association.  This surprising statistic highlights just how difficult it is to secure mortgage finance for many borrowers, with even the experts struggling to find us a deal.

The main reasons brokers quoted for the inability to find their clients mortgages are the tightening of lending criteria and the increase in deposits required, as loan-to-values (LTVs) have been cut - a problem mentioned by 51% of respondents.  After that, 23% of intermediaries cited the withdrawal of products as the biggest impediment.

And this survey was released last week, before the B&B crisis and before hundreds more products were pulled from the market on Monday, wiping out 11% of available mortgages according to some estimates.

So the situation has just got a whole lot worse!

Problem areas

Brokers said that they are having problems finding deals across all product types with remortgages mentioned by 72% of respondents. Over half claimed they had been unable to source a loan for a first-time buyer and 50% couldn't help a sub-prime borrower to find a deal. 

Perhaps most worrying is that over a quarter (26%) of intermediaries had struggled to find deals for standard status borrowers -- the average Joes who are perceived to be least affected by the credit crunch.

What happens to these borrowers?

If brokers are unable to help a borrower get a deal, what can they do?

Well, they could try going direct to lenders to see if there are any products available that brokers cannot access. Earlier this year, many lenders introduced what was called a `dual pricing policy' making their direct-to-consumer deals cheaper than those offered through brokers. This clearly made life extremely difficult for good brokers, who were forced to tell their clients they could get a better deal by going direct to the banks and building societies.

But dual pricing has become less of an issue in recent months and it's fair to say that brokers now have access to most (if not all) of the competitive products on the market (HSBC being one significant exception). While deals may sometimes look different in terms of headline rates, broker deals sometimes come with added extras, like free valuation and legal fees for example, that might offset a difference somewhere else in the product.

The bad news is that the IMLA survey showed that customers who were unable to obtain a mortgage mostly ended up remaining with their existing lender on their Standard Variable Rate as a result. This is likely to be around 1.5% to 2% higher than the most competitive deals on the market. A massive 83% of brokers admitted that borrowers they couldn't help fell into this category. This means that when they come to the end of a deal, such as a two-year fixed rate, they are being forced to move onto a much higher rate, and in most cases will pay significantly more each month.

For first-time buyers, a large proportion (40%) continued to rent instead of buying if their broker couldn't find them a deal.  Interestingly,  a small percentage of existing homeowners who couldn't get a decent remortgage deal decided to sell up and rent (15%), according to the brokers surveyed.

And sadly, they admitted that in 14% of cases where they could not help, the customer is facing repossession.

How can you avoid this?

Is there anything you can do to prevent yourself being one of the borrowers that brokers, or indeed lenders, cannot help to find a decently priced mortgage?

Well, it's easier said than done. There are ways you can ensure you can have access to the best deals, but they may not be easy to achieve. Here are three key considerations:

1. Borrow less.

We would all like to have a whopping 40% deposit but it's not that easy, is it? However the best and most competitive mortgages are available to those who only need to borrow 60% of the property's value. However, there are plenty of extremely good deals for those who have 25% to put down. It gets tougher to find a deal the smaller your deposit so it really is essential that you try to save as much as possible. If you have a deposit of 5% for example you will have a pretty small selection of expensive mortgage to choose from. The good news is that with house prices falling, first-time buyers may be able to continue saving for longer, rather than feeling pressured to rush into the property market right now.

2. Clean up your credit record.

Lenders love whiter than white borrowers with no history of bad credit. This has always been the case and they have always charged `sub-prime' borrowers more to offset the lending risk. Now they simply won't lend to people with anything other than the minimum of credit problems. If you do have outstanding late payments on any credit agreements, settle them before you even apply for a mortgage. Although remember that lenders can still see past payment discrepancies on your credit file.

3. Become Mr and Mrs Average.

Unusual requirements are not what lenders want at the moment. Although there are self-cert mortgages out there for those who can't prove their income, for example, they are expensive and the cheapest deals are available to those in full-time employment, on the electoral roll where they live, and preferably having lived in the same property for a while. Credit scoring often penalises those who move house, and jobs, frequently. 

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