One of the many side effects of the ongoing credit crunch is that savers and borrowers face something of a lottery as to what interest rate they will be charged or paid.
Gone are the days when you knew roughly how much margin a mortgage lender would charge for various types of mortgages, or how much your bank or building society would pay you for depositing your hard earned cash over different terms.
Now, borrowers need a crispy clean credit history to secure the best mortgage, personal loan and credit card deals, while savers need to keep an eagle eye on Libor (London Interbank Offered Rate) as banks and building societies react swiftly to volatile money market rates.
Rates on sub prime mortgages and second charge mortgages have gone ballistic, with stories of high risk secured loans being charged at rates as high as 11 per cent.
To compound matters, most sub prime mortgage lenders are now refusing to lend on more than 75 per cent loan to value (LTV), so anyone wishing to re-mortgage will struggle to find a lender for the excess over this level..
By contrast, someone with an impeccable credit history can still secure a fixed rate mortgage at Woolwich building society at 5.49 per cent for two years, and on 95 per of the property’s value.
Katie Tucker, a senior consultant at mortgage brokers, John Charcol, warns: “Anyone with a sub prime mortgage on a high LTV, should make every effort to pay off as much of their mortgage as possible because trying to re-set the excess over 75 per cent will be well nigh impossible from now on.”
Tucker also urges people to avoid falling into arrears at all costs as lenders can start re-possession proceedings after just three months of arrears.
“Always make your mortgage payments on time and in full, even if you are getting divorced which is a principal cause of mortgage defaults. Even if you are in disagreement with your partner, pay up now and sort it out later. This will probably be cheaper than losing your home,” says Tucker.
Another reason for arrears is redundancy, so it may be worth considering redundancy insurance (also known as accident, sickness and redundancy cover) which should tide you over for a year until you get another job.
