Money Magic

Borrowers with good credit records should have very little trouble being approved for a loan, one broker predicts.

Andy Pratt, spokesperson for Alexander Hall, remarks that people should not be intimidated by reports that lenders in the mortgage sector are tightening their lending criteria.

The effects have mostly been felt by the sub prime sector of the industry. Self-cert mortgage availability has not suffered as a result of the recent credit crunch, he says.

Self-cert mortgages are available to self-employed individuals across Britain.

Pratt maintains that mainstream lenders have seen very little negative fallout. It is non-conforming lenders who have been hit the hardest by the current economic climate.

“All those clients who would have got a self-cert mortgage before have been able to get them even with the credit crunch,” he says.

Self-employed people comprise 13% of the working population.

Two lenders have announced a reduction in mortgage rates in response to recent cuts by the Bank of England. 

Standard Life Bank will drop its Freestyle standard variable rate (SVR) to 7.21 percent, a cut of .25 percent, beginning January 1, 2008. 

HSBC announced that, beginning December 24, 2007, it will lower its variable mortgage rate from 7 percent to 6.75 percent. 

HSBC cut the rate on its tracker mortgage almost immediately following the Bank of England’s decision on December 6 to cut the rate. The bank claims its variable mortgage rate is at least .24 percent lower than many other high street lenders as a result of its latest reduction. 

According to Moneyfacts, the online financial comparison website, 31 lenders have announced changes to their SRVs following the interest rate cut.  Six providers reduced their rates by less than .25 percent. 

The most recent rate reduction compares unfavorably to cuts made in August 2005, the last time the Bank of England lowered rates, according to Lisa Taylor, an analyst for Moneyfacts. 

At that time, 46 lenders announced rate cuts, so the present rate of change seems slow in comparison, says Taylor.

Online mortgage brokerage firm John Charcol believes borrowers will find more value in tracker mortgages than in fixed-rate mortgages.

The firm has expressed its confidence in tracker mortgages because they do not “leave borrowers at the mercy of the lender.” Very few lenders reduced their rates in line with the most recent cut in interest rates by the Bank of England. 

Trackers are becoming more attractive for people who want a variable rate, according to Ray Boulger, senior technical manager for John Charcol. 

He explained that many banks do not change their rates in response to the Bank’s rate. The interest on a tracker mortgage, however, will usually be one-quarter of one percent above a fixed-rate, given a good starting point. 

The credit crunch is forcing many lenders to reduce the mortgages in their portfolios to reduce exposure. 

Boulger expects tracker mortgages will continue to be available in the new year. He says lenders probably will not limit them in light of falling base rates. 

Boulger does not expect an increased number of borrowers to change mortgages in 2008. He expects people to make decisions about their mortgage depending on which is cheaper, a discount mortgage or a tracker mortgage.