More top mortgage deals pulled by lenders

Article source: Anne Ashworth, James Charles and Rebecca O’Connor -

More top mortgage deals pulled by lenders

One of the biggest mortgage lenders, the Cheltenham and Gloucester, pulled some of its most popular mortgage products deals last night after the Bank of England’s, the equivalent of the UK central bank, decision to cut the base rate. This decision will discourage many first time buyers and others looking to remortgage who had hoped that the bailout of the Government’s bank rescue plan would revive the mortgage market and bring in more affordable mortgage products.

Cheltenham & Gloucester, the home loans arm of Lloyds TSB, quickly pulled some of its most competitive based rate linked tracker mortgage products deals after the Bank of England reduced the base rate. The Nationwide, the biggest building society and the Abbey, the second largest mortgage lender, are understood to be contemplating similar moves.

The financial institutions mentioned could benefit from the proposed cash injection of £500 billion by the Government into the banking sector. The Government is proposing this move as it believes that mortgage finance should become more readily available after months which have seen a worrying lack of liquidity in the system.

The move by the bank will benefit many homeowners as they will save hundreds of pounds annually. About 4.7 million borrowers who are on existing tracker deals or paying their lender’s standard variable rate [SVR] should, in theory, see their mortgage bills go down. The Halifax, the Royal Bank of Scotland (RBS) and the Woolwich all announced that they would cut their Standard Variable Rates. Given this news we can assume that a borrower with a £200,000 mortgage would save approximately £700 per year.

Cheltenham and Gloucester’s action will affect the buying decisions of many first time buyers; the participation of these buyers in the mortgage market is seen as crucial to its very success. The mortgage market has recently experienced an increase in the popularity of base rate tracker mortgages as the borrowers have anticipated a reduction in the rates by the bank of England. A section of economists are expecting that the base rate could decrease by further 2 percent over the next year.

Cheltenham & Gloucester commented that the action it has taken was a measure to handle the current demand as it was currently experiencing a high volume of mortgage applications. Now only those clients with considerable deposits will quality for their tracker products.

David Hollingworth of the mortgage broker L&C mortgages said: “Lenders have been increasing tracker rates to improve their profit margins.” He believes that this trend may continue until confidence between the banks with regards to inter bank lending is revived.

Fixed rate mortgage products are traditionally seen as the nation’s favourite option. Given the cut by the Bank of England the lending rates on fixed rate deals could drop over the next few weeks. Lulu Egerton, of estate agent Strut and Parker, commented that the base rate cut was “a show of commitment towards assisting the battered property market”. But other observers suspect that mortgage lenders will put off passing the benefits of the base rate cut on to their more affordable mortgage product; this is in spite of the Chancellor request that institutions in receipt of tax payers’ money should ensure that the banking system has the necessary liquidity to continue lending for the medium term.

James Purnell, the Secretary for Works and Pensions will reconfirm plans, at the Jobcentre Plus conference, which are being put in place for the recently unemployed to have the interest paid on their mortgages. The present eligibility threshold for the scheme for house values is £100,000 but this will rise to £175,000; at the same time the waiting period will also be reduced from 32 weeks to 12 weeks.

Mr Purnell believes that the public must be aware that, in the unfortunate circumstance that they do loose their jobs, there is financial support available for them. These changes by the Government are expected to prevent more than 10,000 potential repossessions.