Can you still get a mortgage?

Money Talk
By Andrew Montlake
Cobalt Capital mortgage brokers

Andrew Montlake

Last week, when I was nipping to some meeting or other in a black cab and the driver asked me what I did for a living, I told him that I was a mortgage broker.

"Mortgages, eh? It's impossible to get one nowadays, isn't it?" he said.

Fortunately he was wrong because getting a mortgage these days is not impossible at all.

In fact, for many people it is not even hard. It is just slightly harder than it was a year or so ago.

No problem?

The reality is that if you have got a good credit history, a good job and a deposit of 10%-15% (or a fair bit of equity in your home), then getting a mortgage will not be a problem.

It is a myth that lenders have shut up shop, although it is easy to get this impression when you skim through the papers or turn on the TV.

Yes, the number of mortgages being taken out has fallen dramatically, as figures published in September by the Council of Mortgage Lenders and Bank of England show.

But this is no surprise given fears of recession and plummeting house prices.

Lenders have tightened up their criteria considerably and are only lending to people they deem to be low, or certainly lower, risk. But most people can still get a home loan.

Reduced choice

What we are seeing now is a return to how the mortgage market was 10-15 years ago, when I first started out as a broker.

There is still an adequate number to choose from

Admittedly, there is less choice, the main reason being that quite simply, there are fewer lenders.

To name but a few, Paragon, GMAC, Edeus, Deutsche Bank, and Mortgage Express have shut up shop.

Lenders like Derbyshire, Bradford & Bingley, Alliance & Leicester and even the mighty HBOS are subject to mergers and buyouts meaning potentially even fewer choices in future.

The number of products may have fallen from around 15,000 to barely 5,000, but for many there is still an adequate number to choose from.

This range still represents the full gamut of possible products: fixed, tracker, discounted, capped, offsets and flexible products.

Struggling

The people that will struggle to get a mortgage at present are first time buyers, who now have to scrape together a deposit of 10%-15%, which is a lot of money despite the fact house prices are falling sharply.

Also struggling for mortgage finance will be people with poor credit histories or people who, for whatever reason, are deemed a higher risk.

For people with small deposits or credit issues, products have almost disappeared.

The sub-prime mortgage market - which targets those with limited or bad credit histories - is no more.

That is no bad thing. Lending to someone whose home had been repossessed barely a year ago and is behind on other loan and credit card payments was never the brightest idea.

Good to talk

If you are finding it difficult to get a mortgage directly there are two things you should be doing.

For those in negative equity or with serious credit issues, the only advice is to sit tight

Firstly talk to your own bank. They may surprise you as they know your history; secondly talk to an independent mortgage broker.

I know, obviously I would say that, but brokers exist for a reason.

Many lenders, especially in this market, prefer to deal with mortgage brokers who have a brand name and a history of introducing good clients to them.

As a result there are many more products and criteria enhancements available through brokers that are not available on the open market.

Unfortunately for those in negative equity or with serious credit issues, the only advice is to sit tight.

It is essential you open up a healthy dialogue with your lender as the majority of them will try to assist as they have to under the "Treating Customers Fairly" charter, so do not be embarrassed about admitting you have problems.

Buying yourself some time can be the difference between keeping your home or not.

Higher costs

All this aside, the majority of people will still be able to get a mortgage, although it will cost more.

Ten years ago people would have bitten your arm off for a mortgage rate of 6%.

These days, when I tell a client they will be looking at an interest rate of 6%, they start to almost hyperventilate, even though, historically, this is a very competitive rate of interest.

The days of the 3.99%, 2-year fixed rate, which was readily available a few years back, will turn out to be an historical anomaly, the by-product of the ludicrous financial instruments and housing market bubble.

The other bi-product of these times are the fees charged by lenders.

Originally they were meant to be an alternative to higher rates - in other words the rate could be reduced by paying a high fee. But they have now become pretty much the norm.

Most lenders will allow you to add the fees onto the loan rather than pay them up front, and although you will be paying additional interest on these fees, it may be more beneficial to do this in order to keep those monthly payments down at an affordable level.

Over the past week, many lenders have upped their mortgage rates in reaction to massive market uncertainty and higher wholesale borrowing rates.

While I am confident mortgage rates will come down again, it may take some time and they may never again be as low as they were two years ago.

But what will never be the case, as the cabby joked, is that mortgages will be impossible to get.

The opinions expressed are those of the author and are not held by the BBC unless specifically stated. The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.