Banks and building societies are reassessing their level of risk and withdrawing some types of mortgage.
More than 1,300 types of mortgage have been withdrawn in the past two weeks as lenders reassess their range of offers during the coronavirus pandemic.
Dozens of banks and building societies have pulled deals as they shy away from riskier lending, leading to the total number of mortgages available falling from 5,177 to 3,833.
While many lenders have removed mortgages that lend to people borrowing more than 80% of their home's value, some have taken away their entire ranges, according to financial information group Moneyfacts.
Others have pulled loans for people buying a new property, but left those for homeowners remortgaging.
Eleanor Williams, finance expert at Moneyfacts, said: “The recent withdrawal of many higher loan-to-value mortgage products and also home purchase products is hopefully a temporary measure whilst lenders reassess risk in this area of the market and what it will be possible for them to offer whilst the current restrictions in place.”
Which mortgages have been withdrawn?
While different lenders have taken different approaches to streamlining their ranges, a number of patterns have emerged.
Many lenders that have made changes during the past two weeks have removed loans for people with smaller deposits.
For some lenders, this means they will no longer advance a mortgage to people borrowing more than 75% or 80% of their home’s value, but others have gone further and have stopped lending to people wanting to borrow more than 60%.
Another trend is for banks and building societies to withdraw their tracker mortgages. The interest rate on tracker mortgages moves up and down in line with the Bank of England base rate.
Some lenders will now only advance loans to people remortgaging, not those moving, and some have stopped doing high value mortgages, such as for sums of more than £1 million.
Finally, a few lenders have pulled their entire mortgage range, or withdrawn all but a handful of fixed rate deals.
Why is this happening?
The coronavirus pandemic has created a lot of uncertainty.
Not only has the Government called on buyers to pause property transactions where possible, but the situation may also lead to a rise in unemployment. Homeowners can also now apply for a three-month mortgage payment holiday.
As a result of these factors, lenders are having to reassess the level of risk they are taking, and many have withdrawn products while they do so.
At the same time, the Bank of England’s move to reduce the base rate to just 0.1% will have impacted lenders' margins on tracker deals, again leading to these loans being withdrawn while they reassess the situation.
What should I do if I need to take out a mortgage?
If you need to take out a mortgage in the near future, don’t panic. With 3,833 products still available, there remains plenty of choice.
The current situation is also likely to be temporary while lenders reassess and, possibly, reprice their ranges to reflect the current market conditions.
If you are having trouble finding a suitable product, for example if you are looking to borrow a higher proportion of your home’s value, consider using a mortgage broker, as they will be able to scour the whole market on your behalf.
It is also important to note that the situation only affects people looking to take out a new mortgage, and it does not impact those who already have a mortgage offer agreed or homeowners who are part way through a fixed-term deal.
Is it a good time to remortgage?
Mortgage rates remain close to record lows, with the average cost of a two-year fixed rate deal falling to 2.36%, down from 2.41% two weeks ago.
Five-year fixed rate loans are only slightly more expensive at an average of 2.66%, compared with 2.71% 14 days ago, so it remains a good time to remortgage.
With standard variable rates, which homeowners revert to when their existing deal comes to an end, currently standing at around 4.79%, someone with a £200,000 loan could save more than £267 a month by switching to an average two-year fixed rate mortgage.
Top 3 takeaways
1. More than 1,300 mortgage products have been withdrawn in the past two weeks as lenders reassess their ranges due to the coronavirus pandemic
2. Lenders have removed high LTV loans, tracker products and high value mortgages, as well as deals for home movers
3. The situation is likely to be temporary while lenders reassess risk
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