Banks kick out bottom rung
It is the most obvious sign yet of how the credit crunch is affecting consumers - mortgage lenders are scrambling to make sure they appear at the bottom of the best-buy tables that once obsessed the industry.
The slow tightening of credit since the US sub-prime crisis began to bite last summer and the fallout from the Northern Rock affair in Britain has begun to transform the sector. Lenders have seized the chance to fatten margins that have been driven down for so long by upstart competitors. The wider impact could be a new kind of housing slump - one caused by a restriction of supply rather than demand.
The last of the 125% loan-to-value mortgages on the market aimed at first-time buyers was pulled when Birmingham Midshires followed the handful of other lenders that had been offering such products. Yesterday the clamp-down spread to the professional market as Scottish Widows Bank, part of Lloyds TSB, pulled its 110% loan-to-value deal aimed at trainee solicitors and the like.
Ray Boulger of the mortgage broker John Charcol said: "Not everyone is unhappy about the credit squeeze. The margins they are getting on new mortgage business today are the best they have obtained for years.
"What we're seeing now is lenders leapfrogging each other to pull deals or raise rates, effectively chasing each other down the best-buy tables."
"The big mortgage lenders are in competition with each other - but this time it's to be nowhere near the top of the table," said Louise Cuming of Moneysupermarket.com. "They're all taking the same approach: go for margins first and not be so worried about market share and volume."
Moneyfacts' own best-buy tables for fixed-rate mortgages highlight how the big lenders have repriced their loans. Halifax's two-year fixed rates start at 6.04%, well above the 5.25% base rate, and HSBC is offering a three-year fix from 5.84%. Few big banking names make it to the top of the best buys.
Rob Clifford at the broker Mortgageforce suggested that unless an easing of the liquidity crisis made credit cheaper for banks, the major lenders would steer clear of competitive rates for months. "The big lenders are carefully controlling mortgage volume," he said. "We might not see any fight for market share until August."
Net new mortgage lending is expected to fall to £90bn this year from £106bn last year, although this remains above the average of £80bn in recent years.
In previous housing slumps the trigger has been a large rise in unemployment. But the credit crunch, say experts, presents a different kind of problem since it affects the availability and price of mortgages. This has already reduced the number of mortgages being sold, though unemployment is close to record lows.
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