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Strict lending rules block borrowers

The number of mortgage products on the market has increased over recent weeks but strict criteria are still inhibiting approvals, brokers have warned.

There are now more than 2,500 mortgage products available for the first time since May last year, according to new figures from Moneysupermarket.com

Competition has returned to the mortgage market this month, with a number of new fixed-rate and tracker mortgages launched. Banks and building societies have also reduced rates across the board in January – with some rates falling by as much as 0.6 per cent.

Data from Moneysupermarket.com revealed that January was the third consecutive month of increases in the number of available products. However, the number of deals available is still tiny compared with the peak of the market in August 2007, when there were more than 30,000 mortgage products on offer.

“We’ve seen lenders start to offer higher loan-to-value deals again but other aspects of criteria are not getting any better yet,” said Ray Boulger of mortgage brokers John Charcol.

Brokers said low-risk borrowers are still having their mortgage applications rejected if they fall only slightly outside of the lenders’ credit scoring criteria.

“Lenders can also change the minimum points you need on a credit score daily to affect their flow of new applications – and they do,” said Katie Tucker, technical manager at Mortgageforce. “Your score can be affected by as little as how long you have lived at your house or had the same job.”

Lenders are also offering a large number of mortgage deals with additional strings attached, which could limit availability.

Bank of China, the third- biggest bank in the world, recently launched a competitive lifetime tracker rate at 2.8 per cent – the bank base rate plus 2.3 per cent – available up to 75 per cent loan- to-value. But prospective borrowers must attend a personal interview at one of the bank’s only five branches across the UK.

“This is probably not a big issue for someone who lives in London but it’s harder for those that live elsewhere in the country,” said Boulger. “Requiring a borrower to come into the branch is a bit over the top.”

Both Coventry Building Society and Yorkshire Building Society have mortgage deals that require borrowers to have been members for more than three years or 12 months, respectively.

Many lenders are offering these more competitive rates only to borrowers who also hold a current account or insurance product with the company.

Santander and Halifax have recently started to insist on borrowers having current accounts to access their best rates – while many building societies require borrowers to use their buildings and contents insurance. Tucker said this means borrowers could lose out on the best deals on other financial products.

Royal Bank of Scotland has a two-year tracker at 4.64 per cent – bank base rate plus 4.14 per cent – available for up to 90 per cent loan-to-value with no fees. But the maximum advance is £150,000 and first-time buyers can access the product only if they become an RBS Private Banking customer – with a minimum income of £75,000 – or if they have a business or Royalties Gold account.

Criteria for new-build mortgage deals remain the most restricted, according to David Hollingsworth of London & Country mortgage brokers. While lenders happily offered loan- to-values of 95 per cent or more pre-credit crunch, very few lenders will now offer mortgages at above 75 per cent loan-to-value.