Page last updated at 00:02 GMT, Friday, 21 March 2008

Mortgage criteria getting tighter

Mortgage application form
First-time buyers are having to find more for a deposit

Consumers are finding it tougher to get a mortgage as cautious lenders continue to withdraw and change deals.

Financial information service Moneyfacts said a string of lenders had tightened up their criteria over the last two days.

With lenders' funds drying up, higher deposits are being demanded from first-time buyers.

Several small building societies have been restricting or halting lending as a result of the financial turmoil.

Latest changes

The Co-operative Bank has become the latest lender to demand a higher deposit by cutting its maximum loan-to-value ratio from 95% to 90% in recent days.

Bigger lenders, such as the Halifax and the Woolwich, have slightly increased the interest rates on certain tracker or fixed-rate deals, while making other deals available only to those able to put down a 40% deposit.

The Cheltenham & Gloucester, part of Lloyds TSB, has also raised the interest rate charged on some deals.

It said it was doing this to "manage" the high volume of demand for its mortgages, caused by some rivals reining in their own lending.

Meanwhile, the market for sub-prime or other specialist mortgages continues to contract, with the West Bromwich Building Society, Mortgage Express and Nationwide replacing some of their existing ranges with new deals demanding a bigger deposit or higher interest rates.

For instance, the Mortgage Works - a subsidiary of Nationwide, the UK's second-biggest mortgage lender, followed many others in withdrawing from the 100% mortgage market on Friday.

Future deals

Smaller building societies are feeling the knock-on effect of banks tightening their criteria. As a result, they are withdrawing deals instead of being swamped by demand.

More than a million fixed-rate deals, typically lasting for two years, are due to expire in 2008, which will add to demand.

Those wishing to move house are being told to act fast on mortgage deals.

Ray Boulger, from mortgage broker John Charcol, said: "Those wanting to move might find a mortgage they could have got six months ago, even a month ago, is no longer available to them."

He added that lenders were changing their deals frequently, sometimes several times a week.


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