Mortgages Are Now Harder To Come By And Loan Rates Rise Above Base Rate

Loan interest rates have risen at a much faster rate than the base rate and mortgage conditions are tightening, according to two new studies.

While the base rate has risen from 5 per cent in November 2006 to the current rate of 5.5 per cent, MoneyExpert.com claims that average loan rates have risen by more than 0.5 per cent across every loan value threshold during the same period.

The comparison site claims this has made it more difficult to keep up with loan repayments as one in 50 adults – potentially more than 900,000 people – have missed a loan repayment in the six months to December 21, 2007, as a result of higher rates and greater living costs.

Those borrowing larger amounts will pay slightly more, according to MoneyExpert.com, with a £12,500 loan incurring interest rates approximately 1.6 per cent higher than just over a year ago. The average rate is now 8.78 per cent for this amount. However, those borrowing around £3,000 will struggle most, with rates up 2.55 per cent from 12.35 per cent in November 2006 to 14.9 per cent now.

“With the cost of living on the increase the obvious thing to do for anyone feeling the strain is to borrow money to tide themselves over,” advises chief executive, Sean Gardner. “The golden rule is only borrow what you are certain you can afford to repay.”

Meanwhile, mortgage lenders have tightened the rules for mortgage applicants, according to Moneyfacts.co.uk amid speculation of a housing market slowdown. Mortgage analyst, David Knight, says: “Since the beginning of December 11, mortgage lenders have reduced the maximum loan to value they offer on some or all of their mortgage range.”

According to the company, ten mortgage providers have withdrawn 100 per cent loan to value mortgages, with just 22 providers still offering the deal. Some have added restrictions to their 100 per cent mortgages.

Mr Knight says: “This more cautious approach of lenders starting to reduce their exposure to the property price fluctuations shows that they have a real concern over the future of the UK housing market. A case of negative equity is bad news for both the borrower and the lender.

“Should this conservative approach continue, borrowers who come to the end of a deal but find themselves still borrowing at a high loan to value ratio could find the choice of deals limited, or may be forced to pay a much higher price.”

© Fair Investment Company Ltd