First Direct Signals More Mortgage Meltdown
Laura Starkey explains why the stop on First Direct mortgages suggests more trouble ahead.
News that First Direct has withdrawn its entire mortgage offering for non-customers is the latest confirmation that the home loan market is rapidly changing.
In an announcement yesterday, the bank stated that due to "unprecedented demand" for its mortgage products, it was necessary to halt applications from anyone who does not already have a First Direct account.
First Direct has stressed that this move is to make sure normal levels of customer service can be maintained, and a backlog of applications cleared.
But while it has emphasised that the suspension is "temporary"- and parent company HSBC is set to launch a `replacement' mortgage product - anxious borrowers are already asking questions about what this could really mean.
Is it important?
Yes, after all, the First Direct bombshell isn't the first hit to home loans in recent weeks.
Smaller lenders, such as the Bath and Earl Shilton Building Societies, have already withdrawn many of their mortgage deals. Others, including the Melton Mowbray, Tipton & Coseley and Newbury Building Societies, have said they will now lend only to local people.
Last Friday, Nationwide increased many of its mortgage rates and withdrew several products, stating that it intends to focus on working with existing customers rather than trying to attract new ones. That same day, Alliance & Leicester withdrew its two year fixed rate mortgage - and the announcement was accompanied by a similar excuse.
Why is this happening?
It's all down to the credit crunch. Banks and building societies are finding it harder to obtain money to lend and so are increasing the rates on their mortgages. As competition in the market falls away, huge numbers of borrrowers are starting to rush for the best remaining deals.
The change has been dramatic. In August 2007, anyone searching for a mortgage had almost 13,000 products to choose from, whereas now there is a mere 6000 or so available.
How could it affect me?
Mortgage rates are likely to go up. This is particularly problematic for borrowers who coming to the end of short-term fixed rates or tracker deals. According to a Motley Fool survey out today, 1.4 million fixed-rate mortgage deals are due to end this year - and 70% of homeowners will face a significant jump in their monthly mortgage payments when the current deal expires, known as "payment shock".
The survey showed that 5% of Fools expect their finances won't take the stretch, and are making plans to sell up their homes and rent rather than meet a major rate rise. A further 5% have said they will have to extend their home loans over a longer period in order to minimise the payment shock.
What can I do?
While 4% of Fools surveyed suggested they'd consider taking on extra jobs to cover the hikes in their monthly payments, I don't think you need to start moonlighting just yet.
There are still decent deals to be had, whatever type of mortgage you're hunting for. I've rounded up the best that remain on the market this afternoon - so if you're looking for a new home loan, get them before they go!
HSBC now offers the cheapest remaining 2 year fixed rate deal, at a rate of 4.99% and with a fee of £1,499. The minimum deposit needed for this one is 10%, but Derbyshire's 5 year fixed deal still caters for anyone in need of a 95% mortgage. This one offers an interest rate of 5.48% and comes with a fee of £999.
Marsden Building Society is offering the cheapest 2 year tracker mortgage, charging 0.34% above base rate (which currently works out at 5.89%). The fee for this mortgage is comparatively low at £799, but customers will need a 25% deposit to be eligible for it.
The best remaining discount rate mortgage is also from HSBC. Customers can still get a 1.31% discount on base rate, and a payable rate of 5.19% on this home loan. It comes with a fee of £999 and requires buyers to have a deposit of at least 10% of the value of their home.
Finally - and most importantly - if you have a fixed rate deal that's due to end this year, remember that planning your next move several months in advance could help to beat the mortgage rate rises.
Look for the best deal you can get now, and a broker like The Motley Fool Mortgage Service should be able to book and hold it for you for up to six months.
Hedge your bets this way and, even if something better comes along in the meantime, you shouldn't lose out.
In the current climate, though, that seems an unlikely event.