| Be warned: there is a credit crackdown ahead and, | | | | rates. And to make life even harder lenders like |
| contrary to historic lending standards, consumers will | | | | GMAC and Deutsche Bank have already cut their |
| find it harder to get loans. Not only will your borrowing | | | | maximum self-cert loans to 75% of a property's value. |
| potential fall overnight, you'll also pay through the nose | | | | Other lenders are expected to follow suit. |
| for the privilege. | | | | First-time buyers who haven't given up yet will find |
| One fallout of the sub prime crisis is that high street | | | | fewer special offers tailored to their situation. Some |
| banks and building societies are making changes to | | | | institutions have pulled their 100% deals for first timers, |
| their lending models. Some big changes, in fact. | | | | and have even stopped offering a no-deposit |
| The effect on customers will be two-fold: firstly, the | | | | mortgage. Young people will have to rely on parents |
| amount you can borrow will be restricted. The exact | | | | for a starter loan, or delay buying for another few |
| limit will vary depending on your financial situation, but | | | | years while they build up a 10% deposit. For those who |
| for the first time, it is not only those with poor credit | | | | are determined to get on the property ladder some |
| histories who will be penalised. | | | | banks still offer loans on a higher interest charge if the |
| Secondly, because of the squeeze on the global credit | | | | deposit is less than 10%. |
| markets, the wholesale lending rate between | | | | Buy-To-Let |
| institutions has increased. It's now 0.59% above the | | | | For some people, investing in property is a much more |
| Bank of England base rate. Lenders need to | | | | attractive way of generating long term capital gains |
| compensate for the extra cost, and they do so by | | | | than, say, leaving it to a pension fund manager. Taking |
| passing it on to the customer. | | | | on the underlying risk of home ownership, landlords can |
| Figures from the specialist broker, The Mortgage | | | | often yield a profitable income from renting property |
| Lender, suggest about 40% of new mortgage | | | | while watching it rack up in value over the years. |
| applicants will fall into the "problem borrower" category, | | | | However, rising borrowing rates can quickly push the |
| as opposed to just 15% who were considered risky 18 | | | | cost of mortgage payments above rental income. For |
| months ago. In a quote to The Times newspaper, | | | | instance, Mortgage Trust recently hiked the rate in its |
| David Titmuss from the broker firm said, "Before | | | | Libor-linked deals by 0.92%, adding £115 per |
| Northern Rock and the so-called credit crunch people | | | | month to the cost of a modest £150,000 |
| could find a mortgage even if they were severe | | | | interest-only mortgage. |
| defaulters. Those days are over and many people will | | | | What's more, a large proportion of buy-to-let |
| be shocked when they apply for a loan or mortgage | | | | mortgages are based on the three-month Libor rate, |
| and are either given a higher than expected interest | | | | which is linked to the higher wholesale lending rate |
| rate or even declined." | | | | rather than the BoE base rate. So even though |
| Mortgages | | | | general interest rates have not changed since July, the |
| First, let's look at the London buyers, namely the | | | | cost of many buy-to-let loans has already gone |
| super-rich who have been artificially supporting the | | | | through the roof. |
| national average house price this year. These are the | | | | Credit Cards |
| high-flying executives who rely on whopping bonuses | | | | Turning to short term loans, credit card customers will |
| to buy millionaire homes. Under the new model instead | | | | soon see a noticeable difference to their terms and |
| of adding their target bonus to their gross annual | | | | limits. Barclaycard has been cutting its customers' |
| income, banks will consider the chance that the bonus | | | | credit limits since last year, while HSBC and NatWest |
| may be cut this year. That's actually quite likely given | | | | have just launched new reviews on existing |
| the turmoil in the financial markets, and this will affect | | | | customers. |
| the earnings potential of these "fat cat" investment | | | | Conversely, the banks are targeting people who rarely |
| bankers. | | | | use their cards, removing their borrowing potential. So |
| Meanwhile, self-employed workers will find themselves | | | | even if you have zero debt across multiple credit |
| paying tougher premiums. Since they can't prove their | | | | cards, banks will be reluctant to lend to you in future. |
| income through payslips, they must apply for | | | | Not only are they scared of high-risk borrowers, but |
| self-certification mortgages instead, which represent a | | | | lending large sums to any individual is simply no longer |
| higher risk of default. It's also easier to lie about your | | | | appealing. In the current economic climate, what once |
| income as your own boss. So to compensate for the | | | | constituted a lucrative loan for the bank now |
| extra risk lenders are now raising self-cert borrowing | | | | represents a low-margin, high-risk deal. |