Nationwide increases mortgage deposit

The Nationwide Building Society is to reduce its maximum loan to value ratio (LTV) to 90% on nearly all of its products for new borrowers from 1st May. The exceptions are its three-year fixed rate mortgage and its three-year tracker.

And any new customers wanting to take out the group's standard variable deal, which it calls its base mortgage rate, will now need a deposit of at least 25%.

The Nationwide is not the first lender to limit lending to customers with only a 5% deposit. Lloyds TSB will only lend 95% of a property's value to people who have a current account or other products with it and apply for the loan through a branch.

The Abbey also only offers its 95% mortgages on a five-year fixed rate deal and a standard variable rate.

95% LTV mortgages are following the trend of the 100% and 125% mortgages following the credit crunch and slowly being withdrawn or becoing harder to apply for, as lenders protect their debts.

Interest Down, Mortgages Up

Hours before the widley anticpated move by the Bank of England to lower interest rates to 5% (down .25% from 5.25%) two leading banks raised interest rates on their mortgage products.

Nationwide building society and Alliance & Leicester increased the cost for their borrowers as the Bank of England tried to lower rates to protect the UK economy, undermining the Bank of England's control on Mortgage rates. Although the Nationwide did also reduce the rate on some of it's mortgages today as well.

Tim Fletcher of financial analysts Baseline Capital said: 'Today's decision is irrelevant as far as pricing for mortgage borrowers is concerned.

'The Bank has effectively lost control of retail interest rates, which have become decoupled from the base rate.

'Any change in the Base Rate is likely to have little or no impact on the cost of raising funds for lenders.

'Together with the need to control demand this cost will continue to dominate retail lenders' pricing decisions.'

Such moves could leave a lot of people suffering twice after today - with banks not passing on rate cuts, or even increasing rates, for mortgages whilst others will reduce interest paid on savings accounts.

Halifax Increases Deposits

The Halifax Bank has followed the Nationwide's increased deposit with a similar move. It also will now only offer it's best rates to the two-thirds of home buyers with at least a 25% deposit.

The Halifax now has 3 rates of lending, those borrowing less than 75%; those borrowing between 75% and 90% and those borrowing 90% to 95%.

Brokers will also no longer be able to arrange 97% loans, although Halifax branches will still offer these, with a premimu of 0.35% on the interest rate.

The changes will leave new borrowers with the Halifax and subsiduaries Bank of Scotland and Inteligent Finance better off by 0.1% if they are able to pay a 25% deposit, but 0.14% worse off if the deposit is 75% to 90%.

The End Of Cheap Loans???

Hector Sants, head of City regulator the Financial Services Authority, has predicted the cheap credit era may be over. He believes the crisis in the financial markets will force the banks to keep more loans on their own books, which could raise the cost of borrowing.

By passing debts to other companies who suffered the loss when debts went bad, banks may now how to keep more loans in house and to cover these bad debts themselves. This could end the ability to provide cheap loans and banks will be forced to provide loans that attract customers for longer terms. This would be the end of the so called 'rate tart', who moves mortgages every time the current special offer comes to an end.

Nationwide Increases Deposits

Nationwide has increased the deposit homebuyers must produce for their best available rate from just 10% of the property price to 25%. With average house prices in London in excess of £300,000, this will mean a £75,000 deposit is required to secure the best possible rate.

High loan to value mortgages are steadily disappearing, with 125% mortgages being pulled last week. This goes hand in hand with the credit crunch and the number of mortgage defaulters stteadily rising. Banks are reacting to this by making it more difficult to get high levels of credit.

Borrowers unable to rise the extra 15% deposit will still be able to borrow from the Nationwide, but only by paying a further 0.2% - almost effectively removing this months rate cut.

Mortgage Lending Falls

Falling confidence in the property market and tighter lending restrictions worked against the December interest rate cut and led to the lowest mortgage borrowing in December for 2 and a half years.

At £22.6bn, this was a 21% reduction against the previous December and 25% less then November, revealed the Council of Mortgage Lenders.

Overall, in 2007 almost £1bn was borrowed in mortgages per day - a £362bn. This is up 5% on 2006 in which £345bn was borrowed.

The Council of Mortgage Lenders' figures showed mortgage lending by building societies broadly flat during 2007 at £52.1bn, compare to £52.8bn lent in 2006. But net lending, which allows for redemptions and repayments, fell by 21% to £12.6bn.

Analysts predict "a very good chance of an interest rate cut in February, and at least one more during 2008".