Page last updated at 16:17 GMT, Thursday, 29 May 2008 17:17 UK

Where's my mortgage gone?

By Adam Harcourt-Webster
BBC Money Programme

Row of houses in North London
Three million homeowners will come off a fixed-rate deal this year
The number of mortgage products on the market has fallen dramatically in the last year, shrinking from nearly 11,000 to around 3,200.

The changes now sweeping through the market haven't been seen for a generation.

The credit crunch has led Britain's banks and building societies to charge higher interest rates on the money they lend out and to withdraw thousands of mortgage deals, leaving increasing numbers in a desperate situation.

Disappearing deals

Many home owners have fixed mortgage deals that typically last two, three or five years.

Ray Boulger of mortgage brokers John Charcol expects the fixed mortgage deals of some three million people to come to an end this year, and they could end up paying a lot more for their new deals.

Hillary Le Roux
There are absolutely no deals out there for us
Hillary Le Roux, Northamptonshire

"If somebody has already got a mortgage and they are looking to re-mortgage, but they can't get a deal better than their lender's standard variable rate, then that means they are going to end up paying a rate significantly higher than they could have expected a while ago."

"It's hard on everybody coming to the end of a deal," says Mr Boulger.

1.4 million Britons will be coming to the end of a two-year fixed deal this year.

"In today's market, clearly a lot of those people will have wished they'd taken out a longer-term deal," he says.

Reluctant to lend

The cost of the average British mortgage has gone up 200 in the last two years, according to the mortgage industry research company Moneyfacts.

Going from a 4.34% to a 7.07% deal:
A 100,000 mortgage costs 186.25 more a month
A 150,000 mortgage costs 279.38 more a month
A 250,000 mortgage costs 465.63 more a month
Source: Moneyfacts

Homeowners coming off a two-year fixed deal in 2006 could typically have re-fixed on a similar deal at 4.34%. But now, homeowners are expecting to pay at around 6.65%.

And now the banks are becoming reluctant to lend money to so many customers.

The Money Programme has met three families in their search for a mortgage.

Homeowner Polly Sharma from Wolverhampton, has been trying to remortgage after coming off a fixed-rate mortgage.

She's been unable to secure a new discounted deal, despite having a well-paid job and plenty of equity in the house.

"They were all willing and supporting mortgage applications several years ago, and five years ago I had a fantastic deal," she says.

"Now it's come to the point that I need their help and they're wiping their hands."

Credit crunch

Hillary Le Roux from Northamptonshire has the added problem that she took out one of Northern Rock's Together mortgages, borrowing 125% of the value of the home they bought.

Doug Maslowski
My broker said that for the mortgage I wanted, a deposit of 9,000 wasn't enough any more
Doug Maslowski, first-time buyer

Now Northern Rock, the first British bank to fall victim to the credit crunch, has been nationalised and is not willing to offer her a comparable mortgage, and neither is any other lender.

All 100% mortgage deals have disappeared from the market. Hillary has been left with no options.

"There are absolutely no deals out there for us," she says.

Things are little better for first-time buyers.

Doug Maslowski is trying to buy his first home for his partner and young son.

Just as house prices have begun to fall, he's finding lenders want bigger and bigger deposits.

So far, he hasn't been able to secure a mortgage at all.

"My broker has said that for the mortgage I wanted to go for, a deposit of 9,000 wasn't enough anymore.

" I need to raise that to 12,500, and of course... I could go back again and he might say I have to raise it more again."

'Very, very risky'

The problems faced by these families stem largely from the crisis in sub-prime lending in the United States, which sent shockwaves through the global banking system.

The amount of money money banks were willing to lend to each other was severely reduced, which in turn made them very reluctant to lend money to their customers in the form of mortgages.

"The fact is that banks have got to the point where lending money out via mortgages is risky, very risky," says Merryn Somerset Webb, editor of MoneyWeek.

"It didn't seem risky two years ago, now it's clearly very risky and if they don't want to lend money out they won't."

It seems the days of easy money and cheap mortgages have gone.

The Money Programme: Where's My Mortgage Gone?, BBC Two at 1900-1930, 30 May.

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