More mortgage deals are withdrawn

More banks have withdrawn mortgage deals following First Direct's decision to suspend its entire range.

The bank, which is part of HSBC, said the withdrawal was to allow it to cope with the unprecedented demand for its range of mortgages.

The Co-operative Bank appears to have had the same problems and has withdrawn its two-year mortgage deals.

The US investment bank Lehman Brothers is also withdrawing from the UK mortgage market.

Its Southern Pacific and Preferred Mortgages will stop taking new business at the end of the day.

First Direct stressed that it is only temporarily ending mortgage offers to people who are not already its customers.

Many providers have withdrawn mortgages or raised interest rates this year, leaving some smaller banks and building societies unable to cope with demand.

First Direct says applications have been five times its usual levels.

"The flood of interest in our mortgages has meant we're taking longer than we'd like to handle applications, especially from people who are not existing customers," said First Direct's CEO.

We want to be back in the market as soon as possible

"Rather than increase interest rates dramatically to discourage new applications, we've decided to withdraw temporarily from offering mortgages to non-customers until we've cleared the backlog."

According to Moneyfacts, mortgage products on offer have fallen by 20% over the last week.

As a result of the continuing credit crisis, the interest rates at which banks lend money to each other are, unusually, far above the Bank of England's base lending rate.

And the banks are finding it much more difficult to raise money from credit markets for mortgage-backed securities.

That has made it uneconomic for some institutions to carry on offering mortgages and thousands of products have been withdrawn already this year.

Figures on Wednesday showed the number of new mortgages approved for house purchase fell slightly in February to just 73,000. This figure was 39% lower than the same month a year earlier.

First Direct is the first bank to withdraw its entire range to non-customers, although the Bath and Earl Shilton building societies took the same step last month.

Last week, the Nationwide building society, one of the UK's biggest mortgage lenders, raised its interest rates significantly on new fixed and tracker deals.

It said this was both because of the increased cost of raising the funds and the need to cope with demand.

Many other lenders are demanding bigger deposits with mortgages of 100% or more of a property's value having all but disappeared.

Although the number of first-time buyers and other house movers has been falling, more than a million people will see their short term fixed rate deals expire this year.

As a result, they are starting to look around to find a better deal from other lenders, as well as their existing one.

The situation has been made worse by the near-collapse of the Northern Rock.

What we have seen elsewhere in the market is a continual leap-frogging of rates where lenders have been re-pricing upwards

What was the UK's busiest lender last year has now withdrawn from the market, leaving many of its customers looking for another lender.

First Direct had taken a drastic step to cope with demand.

From having over 25,000 mortgage products on my sourcing system about 6 months ago, there are now under 7,000 !

Long-term fixed rates risky, stupid and dangerous.

Mr Darling, The Chancellor of the Exchequer, gave his first Budget yesterday. There was not a lot in it for home-owners in particular, with no reduction in Stamp Duty for first time buyers, or otherwise. However he did state that he would like mortgage lenders to offer Long-term fixed rate mortgages.

I believe he is living in cloud cuckoo-land, as long term fixed rate mortgages will never catch on. He fails to understand that people will not commit to a long term deal which could potentially harm them in the short, medium and long term. Long term deals are potentially risky for borrowers who could be stuck in expensive deals when interest rates are falling or have to pay high redemption penalties to move house.

Currently, there are just six (out of 90) lenders who offer fixed rates for 25 years or more despite the Chancellor of the Exchequers repeated call for more long-term deals to be offered.

Mr Darling launched a Treasury consultation on long-term fixed rate mortgages which will report back in the autumn. Iin his Budget speech he said “more people should have the chance” to take out long-term fixed deals." Cloud cuckoo land is just being delayed.

Figures show lenders with 25-year deals direct to the public include Norwich & Peterborough,, Kent Reliance, Nationwide, Co-Operative Bank, Cheshire and Manchester which also offers a 30-year deal. Homebuyers in the Chancellor’s own Edinburgh constituency can only choose from four lenders as Kent Reliance and Norwich & Peterborough do not offer loans in Scotland.

I say "Certainty about monthly mortgage payments may be a good thing but borrowers should think very carefully before committing to 25-year fixed rates or any product longer than 5 years. Take Independent Mortgage Advice. The risks are clear. Not only could borrowers end up locked at a higher rate when interest rates are falling but could also find themselves having to pay redemption penalties if they want to move house. Remember that the average person stays in a house for under 7 years. It is virtually certain that people’s circumstances will change several times over a 25-year period. It will be interesting to see what comes out of the Treasury review as all the evidence so far is that the mortgage industry does not appear to share Mr Darling's ambition for such long-term fixed-rate deals. Analysis shows rates on 25-year fixed deals available direct to the public currently range from 5.5% to 6.58%. Best rates for two-year deals range from 4.75% to 5.50%. Who would commit to a higher than necessary deal than they need to. Market forces will dictate what products are avaliable to borrowers.

A suggestion to the Chancellor : As you now own Northern Rock bank, why not force them to only offer long term fixed products? Use the 'People's Bank' to see if the people take up such products. After all, if you believe long-term fixed rates are so good, your 'People's Bank' will attract so many customers that it's return to private ownership will be assured, relieving you of the burden that nationalisation of Northern Rock has cost the tax-paying public (who are also borrowers).

Mr Darling, enjoy your time in the limelight whilst you can. You will be voted out at the next General Election if you carry on with such nonsense as you delivered yesterday."