We aim to achieve a 30 minute response time during office hours

House Purchase  -  Remortgage  -  Buy 2 Let

Northern Rock is planning to cut its mortgage book by 50%. This will enable them to repay some of the debt underwritten by the Government. How might they do this?  

Most of Northern Rock’s customers have 2-5 year fixed rate mortgages – many were 2 year deals arranged 18-24 months ago which will be coming to the end of their special rate period during 2008. Northern Rock hopes many of these customers will change lender and therefore reduce its mortgage book significantly during 2008. 

To encourage borrowers to move, Northern Rock will not offer competitive mortgage products for its customers. Instead, they will revert to the lender’s standard variable rate, which is currently 7.59%. 

Ordinarily, customers approaching standard variable rate would move their mortgage to a new lender and secure a better deal anyway – this is something mortgages-online does for customers every day, regardless of the lender. However, some Northern Rock customers may find this very difficult because the terms once offered by Northern Rock are very difficult to find with other lenders. Customers that fell into the following categories will experience the most difficulties and should avoid delay finding a new lender 

• First time buyers that had little or no equity when they bought their homes (i.e. no deposit). Unless their homes have increased in value it will be difficult to find a good alternative lender.
   
• Customers that borrowed the maximum allowed for their salary (4.8 x Salary). This enabled them to obtain a bigger mortgage than was otherwise available with other lenders. Unless the salary of these customers have increased it will be difficult to find another lender without reducing the mortgage. Those lenders that lend high income multiples are likely to insist on there being 25% equity in the property to be mortgaged.
   
• Northern Rock specialised in lending additional capital to help with associated purchase costs. In some cases, up to 25% of the property value was available as an unsecured loan. Borrowers could have up to 95% mortgage and 30% personal loan. Alternative lenders are unlikely to take on personal loan debt unless there is sufficient equity in the property.
   
• Borrowers with a Northern Rock personal loan could choose to leave the loan with Northern Rock and move only the mortgage. However, the loan rate will increase. Paying it off may not be an option and retaining it means the new lender will take into account the monthly payments when assessing how much they will lend.
   
• House prices fell during December in many regions and if this continues then the amount of equity in homes will reduce. This effect is more acute for borrowers that bought in the last few years with little or no deposit and have not benefited from rising house prices. Only a small fall in house prices quickly puts these borrowers into negative equity and makes it difficult to transfer a mortgage.

What to do if you are a Northern Rock customer
You should start looking for a new lender sooner rather than later. Lenders faced with an influx of high loan to value applications will want to limit their exposure to risk in a difficult market. Most lenders will keep deals open for up to 6 months. Be one of the first to move your mortgage, not the last 

If you have equity of less than 10% try to reduce your mortgage debt to increase the likelihood of getting a better deal elsewhere (equity is the difference between the value of your home and the mortgage secured on it). Put money aside NOW and use this to borrow less when the time comes to move your mortgage – it should give you more choice but at the very least it will give you some cash to help with higher mortgage payments. 

Don’t put your head in the sand – talk to one of our mortgage adviser about the deal you are on now and find out what you can expect to get in the future. Understand the costs now and determine whether or not you can afford it. Reduce your outgoings to help ease the potential burden later.  

Better to be prepared rather than risk losing your home. Remember.... 

YOUR HOME COULD BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR LOAN SECURED ON IT 

Mortgages-Online is an Independent Financial Adviser that specialises in mortgages. Call us on 0800 01966 24 and one of our advisers will be happy to discuss your options.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT
KEEP UP REPAYMENTS ON YOUR MORTGAGE 
Mortgages-Online Limited, 19 Weekday Cross, The Lace Market, Nottingham, NG1 2GB
Mortgages-Online is authorised
and regulated by The Financial Services Authority
Telephone calls may be monitored