Mortgages are still in short supply despite the number of approvals going up in December.
So if you are trying to get a mortgage, it might come as an unwelcome surprise to know that your area might be considered a mortgage blackspot!
If you took out a 2 year fixed rate mortgage in 2008, then you are being urged to boost the equity in your home; or you could face up to £3,000 a year premiums when your mortgage deal ends in 2010.
Savills estate agent and broker have revealed that hundreds of thousands of you who got your mortgage last year with deposits of nearly 50% are likely to be denied access to the best mortgage deals.
House prices have fallen 17% since the start of last year and expected to drop another 10% this year. This means that you will see your equity fall below the 40% level at which the best mortgages can be gained.
Only last week the Nationwide blamed the low mortgage approval figures for the 1.3% fall in house prices seen in January (and 16.6% drop in the last year), despite an increase in inquiries from prospective homebuyers.
Mortgage blackspots
Over 50% of all mortgages taken out in 2008 were fixed rate mortgages (of which most were 2 year deals) and this means large numbers of them will expire in 2010.
If you live in Brighton or Exeter, you took out mortgages with an average loan-to-value of 54% and 57% respectively last year. With another 10% fall in prices you would be forced to borrow 64% and 67% by 2010. If you took out your mortgage at the start of 2088 (and before the 16% drop in market value), you could see your LTV surge to 80% and 83% respectively.
The picture is worse for those of you living in Cambridge or Bristol as you will see your equity reduced to less than 25% and face paying an average rate of 6.29%. That will cost you an extra £220 a month (£2,640 a year) on a £200,000 loan, compared with the deal you would get with a bigger deposit.
And if you live in Birmingham, then you could find yourself in the remortgage “danger zone” with as little as 8% equity remaining when you have to remortgage next year.
Bigger mortgage deposit equals better rate
Recently, the Woolwich introduced a market best fixed rate mortgage at 2.49% for 12 months; but only for those of you with who can stump up a 40% deposit.
If you have that amount of equity in your home, then you can get an average rate of 4.43%, while those with just 25% typically pay 4.68%. On a typical £200,000 mortgage, the difference is £40 a month, or £480 a year.
So, if you live in a mortgage blackspot, what are your options?
We outline a few below:
1. Remortgage now - even if you are in mid-deal
The cost of fixed rate mortgages has been dropping and if you are locked into a high rate, it can be cheaper to switch to another deal, despite the penalties.
As an example, those of you who took out a Nationwide 2 year fixed rate with 6.55% on a £200,000 loan last June will have to pay a £3,000 penalty for breaking the contract. But, you could still save £4,303 a year by switching to Alliance & Leicester’s 2 year fix at 3.59%. This is the cheapest 2 year fix for those of you with a 40% deposit, available through impartial mortgage advisers.
2. Time your remortgage right
Falling house prices mean delaying arranging a new mortgage can limit you to more expensive deals; this is why it pays to get a mortgage offer a few months before your current deal expires to achieve a higher valuation.
Did you know for example, that Nationwide allows you to book a rate six months in advance without another valuation? Also, an offer from Cheltenham & Gloucester is valid for four months with no need for another valuation, but you could lose your arrangement fee.
Read: Should you remortgage when your fixed rate deal ends?
3. Overpay to increase your equity
You can knock thousands off repayments and years off your mortgage if you overpay, In addition, it is also beneficial when you come to remortgage.
If you are a homeowner with a £200,000 tracker mortgage and you maintain your repayments despite the 3.5% Bank rate cut since last October, you could boost your equity by 5% in the next two years.
Read: Overpaying mortgages is back in fashion
4. Don't rely on the SVR
Some mortgage lenders have standard variable rates (SVRs) that are cheaper than taking out a new mortgage, but some of the biggest lenders have failed to pass on interest-rate cuts.
Woolwich, Alliance & Leicester and Norwich & Peterborough all have SVRs above 5%, while Nationwide’s is just 3.5%.
5. Check your small print
Those who took out an Alliance & Leicester 2-year tracker in June, for example, will pay 0.99% above Bank rate when the deal ends next year or 2.49%. This is better than the cheapest tracker mortgage.
If you opt to roll on to these reversion rates, you can also avoid paying upfront fees.
(Please note that articles on Money Hospital do not constitute regulated financial advice. The articles are intended to provide general personal financial information, and are based on journalistic research. We urge you to consult an Independent Financial Adviser (IFA) before making any important decisions about your finances. All rates are correct at time of printing but are subject to change without notice.)