Halifax joins mass exodus from risky end of mortgage market

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The Independent Online

Halifax Bank is to raise interest rates for mortgage borrowers taking out larger home loans and stop doing business altogether with customers who cannot find deposits of at least 5 per cent.

Halifax, which is Britain's biggest mortgage lender, with a 20 per cent share of all new mortgages written in the UK, said yesterday that it would reduce its maximum loan-to-value (LTV) from 97 per cent to 95 per cent from Monday. In addition, customers with LTVs of between 75 per cent and 95 per cent will pay more to borrow money from the bank, with interest rates on such mortgages rising by an average of 0.14 percentage points.

The increases, which are as high as 0.35 percentage points on some deals, will also apply to products from other HBOS group members, including Bank of Scotland and Intelligent Finance.

Halifax said it wanted to target the "most prudent borrowers" and would therefore cut the rates charged to customers with deposits of 25 per cent or more by an average of 0.1 percentage points.

Halifax is the latest mortgage lender to react to growing fears about falling house prices, rising repossessions and the global credit crisis by cutting back on lending to customers deemed more risky. It follows rivals such as Nationwide Building Society, which announced similar changes to its product range last month, and First Direct, which stopped offering new mortgages altogether earlier this week. However, as the UK's largest lender, Halifax's move is likely to be followed closely by leading rivals, increasing the pressure on homebuyers with small deposits, or borrowers seeking to refinance large fixed-rate mortgages taken out two or three years ago.

Andrew Montlake, a partner at the independent mortgage broker Cobalt Capital, said he expected the vast majority of lenders to become increasingly risk averse.

"It's like the clocks have turned back 15 years," he said. "Lenders are only looking for the highest-quality applicants – those with large deposits, good jobs and perfect credit histories."

Heather Scott, a spokeswoman for Halifax, said: "The mortgage market is changing, and while conditions are so volatile, we are rewarding prudence."

Ray Boulger, technical director of the independent mortgage broker John Charcol, said other lenders would follow Halifax's lead. "If you have 20 per cent of the market, you want to maintain an orderly market, but while Halifax is keen to retain its 95 per cent LTV product, it needs to reflect the heightened risks of a softer housing market."

Figures from Moneyfacts, the mortgage market analyst, show a dramatic contraction in the sector, with the number of home loan deals available falling by 40 per cent during March, from 7,726 to 4,794. In the past week alone, a further 400 products have been withdrawn, though Halifax pointed out that it plans to increase the number of products after next week's shake-up of its range.

David Hollingworth, a director of the independent mortgage broker London & Country, said time was running out for borrowers keen to secure finance unless they could come up with decent deposits. "It's always been true that you'll get a better interest rate if you have a larger deposit," he said. "But a 95 per cent deal now costs a minimum of 5.59 per cent a year, significantly above the Bank of England base rate."

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