What's the deal after the mortgage shuffle?

By Kevin Peachey
Personal finance reporter, BBC News

Fewer mortgages are being dealt out owing to the credit crunch

Lenders have been reshuffling their pack of mortgages on a daily basis in recent weeks.

They are now dealing from a much smaller deck. There was a 20% fall in the number of mortgage offers available in just one week.

Big-name providers have been withdrawing offers or putting up the price of a mortgage, claiming they have been swamped with requests on competitive deals.

The credit crunch means that banks and building societies are less keen to lend to each other and do not want to overstretch themselves by taking on new custom.

You could say they have a full house.

So what kind of hand has been dealt to householders in the UK, and how should they play it?

FIRST-TIME BUYERS

First-time buyers could be forgiven for thinking the deck is stacked against them.

First-time buyers are having to find bigger deposits

During the past decade, the booming housing market has pushed house prices higher and higher. Only in the last few months has it stalled.

The UK's second-biggest mortgage lender, the Nationwide, is now predicting a modest fall in house prices in 2008.

But although prices might fall, the credit crunch means lenders want to take fewer risks and so are asking for a much larger deposit.

This has hit people like Adam Gannon of Bolton, who e-mailed the BBC to say he had been saving up for a year to pay a deposit on his first home.

"I was planning on moving out in June with a 95% mortgage and now that won't be possible. By the time I can afford a 90% mortgage, they will have been pulled too. Will this ever end?" he said.

Many will in fact be asked for a 15% deposit. With the Land Registry putting the average cost of a home in England and Wales at £185,616, that is a deposit of £27,842 for a typical home.

The UK's two biggest mortgage lenders, the Halifax and Nationwide, have announced their best deals are being offered to those who can put down a deposit of 25%.

Simon Tyler, of mortgage brokers Chase De Vere, said: "First-time buyers should be very clear that this is a property that they want to live in for a while".

"Be very careful to save hard and consider whether now is the correct time to buy."

HOMEOWNERS DUE TO REMORTGAGE

The advice from brokers to those looking to remortgage is to plan ahead, but act fast.

More than a million people are estimated to be heading to the end of a fixed-rate deal this year and looking to remortgage.

Our banks have suddenly rediscovered the risks of providing credit - but it may be a bit late for their or our good Robert Peston, BBC business editor Mortgage squeeze to worsen Read Robert Peston's blog

They are unlikely to be able to find a deal as good as the one they are coming off.

The average fixed rate deal is around 6.34%.

Anyone with a poor credit history could struggle to get a deal and faces going on to the standard variable rate, which is more expensive than a fixed-rate deal - currently typically at 7.49%.

This has risen despite falling base rates.

Brokers stress that there are good deals around, but there are now just 4,679 different home loans available, compared with 15,599 in July.

The Bank of England says that the squeeze on the availability of mortgages is expected to continue in the next three months.

The Bank also said the number of new loans approved for people who are staying put, but moving their mortgage deals to new lenders, fell to 111,000 in February from 118,000 the previous month.

"If you are seeking a better rate and do not have any more funds, first check with your existing lender what the best deal you can get is," said mortgage broker Mr Tyler.

"Then check with other lenders or via a broker to see if this deal can be improved on in the market. Do not forget to assess the costs of leaving the current lender and putting the new loan in place."

HOMEOWNERS WHO NEED TO MOVE

The temptation for people looking to move house is to sit tight until the turbulence dies down.

House prices have stalled, but there are some cases of people slashing the price of their property to ensure a sale.

Some prices are being slashed to ensure a sale

People like Sharman Day, who wanted to return to her roots in Dorset after being widowed 12 months ago.

Over the year, she cut the price of her Essex home from £320,000 to £238,000. Sales have fallen through twice, because the purchasers did not have the money to buy, meaning she lost the house she was hoping to move into.

She praised Abbey for drawing up new mortgages without charge on each occasion, but is aware that she is facing a more expensive deal than she had before.

"It has been a nightmare," she said.

Mr Tyler advises people who are keen to move to have a really accurate idea of the value of their home and to resist over-reaching.

"If you are borrowing to the limit you may want to consider a base rate tracker over two years as it seems probable that rates will fall in the next 18 to 20 months so reducing your outgoings if you link to the base rate," he said.

PEOPLE WHO TOOK HIGH LOAN-TO-VALUE DEALS

Led by Northern Rock, the high loan-to-value mortgage was a popular choice not so long ago.

The Bank of England is predicting tighter mortgage lending

First-time buyers were especially keen on 100%-plus mortgages, because it allowed them to buy a home without saving a deposit and to have some cash for home improvements.

Some have argued that these borrowers were too much of a risk.

These customers could also be encouraged to go elsewhere when their deal comes to an end, as lenders are drawing back on their riskiest customers.

This is most likely with customers of Northern Rock, which is looking to slash its mortgage book after being nationalised.

Mr Tyler said that it might not all be bad news for these people. If their home has grown in value so the loan is now worth less than 75% of the property, they could remortgage at an attractive rate.

But timing would be an issue as waiting a couple of months for the mortgage market to settle down might also allow time for the property to lose some of its value.