Lenders close doors to new mortgage customers
The Co-operative Bank is to pull its popular two-year mortgage range, just days after First Direct suspending lending.
The Co-operative says that unprecedented demand for its two-year products has led it to suspend lening on a “temporary” basis from 3 April.
John Barker, head of mortgages at Co-operative Bank, said: “We pride
ourselves on our ability to create long-term customer relationships and
will not compromise our market leading levels of customer service, by
simply chasing business volume at any cost.”
The news comes after First Direct closed its doors to new mortgage customers on 31 March. The HSBC-owned internet and telephone bank says it saw a five times increase in demand after other lenders pulled similar deals from the market. It adds that the move is a temporary measure until the backlog of applications has been cleared.
First Direct will still offer mortgages to existing customers who are either coming up for remortgage or have a bank account with it.
Halifax is also rumoured to be closing its doors to business from new
customers after being bombarded with business, something the lender has
refused to comment on.
The moves by both First Direct and The Co-Operative are symptomatic of the faltering mortgage market, where lenders are withdrawing products and putting up rates on a weekly basis. Although a lack of funding is the root cause, there is also a reluctance among banks to be seen as the “lender of last resort” attracting all the business.
Instead, lenders are opting for quality rather than quantity.
Rob Skinner, spokesman for First Direct, said: “We expect to relaunch our mortgages to new customers in a matter of weeks but we don’t have an exact timetable. The increase in demand meant we could either put up our rates to discourage applications or take a pause in new business. We didn’t think it was fair to our existing customers to put up rates.
“We have every intention of returning to the market.”
Lehman Brothers has also confirmed that its two sub-prime lenders will also close their doors to new business.
A Lehman Brothers spokesman says Preferred Mortgages and Southern Pacific Mortgage Limited (SPML), which deal with sub-prime, buy-to-let and mortgages for the self-employed through brokers, will continue to look after existing customers but will no longer except any new business.
He added that this will remain the case until the market improves.
Lehman Brothers previously supplied sub-prime lending to Northern Rock, through the SPML brand, but terminated the agreement after the bank was nationalised earlier this year.
Figures from the Bank of England show mortgage lending to individuals was £27.1 billion in February, down from £29.5 billion in January. The majority of loans issued in February were for remortgages (111,000) rather than house purchase mortgages (73,000).
And other data from the Land Registry show house prices in England and Wales remained static during February at £185,616.
The number of house sales between September to December 2007 averaged 90,880 per month, down from 117,301 for the same period last year.
All sub-prime financial products are aimed at borrowers with patchy credit histories and the term typically refers to mortgage candidates, though any form of credit offered to people who have had problems with debt repayment is classed as sub-prime. Depending on the lender’s own criteria, sub-prime can apply to borrowers who have missed a few credit card or loan repayments to people who have major debt problems and county court judgments (CCJ) against their name. To reflect the extra risk in lending to people who have struggled in the past, rates on sub-prime deals are typically higher than for “prime” borrowers.
The catch-all term applied to investors who buy properties with the sole intention of letting them to tenants rather than living in them themselves, with the proceeds from the let usually used for the repayment of the mortgage. Buy-to-let investors have to take out specialised mortgages that carry higher interest rates and require a much bigger deposit than a standard mortgage. Other expenditure can include legal fees, income tax (on the rental profits you make), capital gains tax (if you sell the property) and “void” periods when the property is unlet.