Are we likely to see more lenders withdraw from the mortgage market?

Experts say small building societies are the most likely to stop offering new mortgages.

Julia Harris at Moneyfacts.co.uk, of the financial information website, says: “The best deals won’t be around for long. Bath and Earl Shilton building societies have already withdrawn all their deals, except those at their standard variable rates. Three other societies - the Newbury, Melton Mowbray and Tipton & Coseley - are lending only to local people.

“These small lenders with good rates simply can’t cope with the sheer number of mortgage applications.”

Earlier today, Derbyshire building society has withdrew its 4.99 per cent two year fixed rate deal and Cumberland building society announced it is only offering its 5.28 per cent two year fixed rate to customers within its branch area.

Who is now on the best-buy list?

First Direct’s parent, HSBC, is now offering a similar product to First Direct’s best buy two year fixed rate, which was at 4.95 per cent with a £1498 fee. The HSBC two year fixed rate is at 4.99 per cent with a fee of £1,499 (It was previously 5.46 per cent with a £999 fee).

There are still some other good deals available. Derbyshire building society’s two year fixed rate on 95 per cent loan-to-value is currently at 5.29 per cent with a £999 fee. Its five year fixed rate is at 5.48 per cent also with a £999 fee.

Cheshire building society has a three-year fixed-rate deal at 5.49 per cent with a fee of £899 and Newcastle building society has a fixed rate of 5.55 per cent until May 31 2011 with a £699 fee.

Ms Harris says: “Small building societies are often at the top of best buy tables – the deal that Cumberland withdrew today has been the best buy for the past year. Unfortunately these lenders are the ones least likely to cope with the flood of applicants, so these best-buys may not be around for long.”

Who are the people applying for these mortgages?

First Direct blamed an “unprecedented number of applications for its home loans in recent weeks” for its withdrawal from the market. This flood of mortgage applications is happening for a number of reasons.

Katie Tucker at broker John Charcol says: “Two years ago there was some fantastic short-term fixed-rates deal available, because there was lots of cheap money around and lenders were desperate for a share of the market. People were getting fixed rate deals of around 4.5 or 5 per cent.

“Around 1.4million people are coming to the end of their fixed rate mortgage this year and face being placed onto their lender’s standard variable rate, which has shot up to an average of 7.25 per cent. This would mean a big increase in monthly repayments. Homeowners are simply desperate to switch to another good fixed rate deal before they all disappear.”

How many mortgages are now available?

Last week there were 5,000 mortgages available, including buy-to-let and sub-prime deals, but this number has dropped by 500 in the past week alone.

But it is not just the withdrawal of products that is worrying borrowers – lenders are continuing to raise interest rates and tighten lending criteria as well. Nationwide, which has a 10 per cent share of the mortgage market, increased its fixed rate deals by 0.2 per cent and its tracker deals by 0.51 per cent last week.

A Nationwide spokesman explained: "We have had a large number of applications. It's really about managing inflow." This took Nationwide’s two year fixed rate to 5.95 per cent and its two-year tracker to 6.4 per cent. Intelligent Finance also increased fixed rates by 0.35 per cent and its offset tracker by 0.5 per cent.

Ms Tucker says: “All lenders want less borrowers at the moment – so they either withdraw deals altogether, or try to price themselves out of the market. The best deals are now definitely with the fixed rates rather than the tracker rates, which is why fixed rates deals are receiving so many applications.”

I need to remortgage soon, what should I do now?

Mel Bien from broker Savills says: “If you’re approaching the end of your mortgage deal you need to take action now. Remember that you can reserve a mortgage up to six months before you need it – all you do is pay for is the valuation, which costs about £350. When you come to the end of your current deal, if the mortgage you have reserved is still the best deal then go for that, or if a better one is available, you can opt for that – you will have just lost £350.

“People are clearly panicking at the moment so reserving one of the few remaining good deals may provide some peace of mind. People may hope that the market will have recovered in six or seven months time – but unfortunately there is no end in sight yet.”

Ms Tucker says: “People currently looking for a mortgage or remortgage should seek advice from an independent broker to help them make their way through the quagmire that is the mortgage market. With products changing and being withdrawn on an almost daily basis, it needs an expert to work out what the best deals out there are.”

What can I do to help my chances of securing a mortgage?

Ms. Bien says: “Firstly you need to get your loan-to-value (LTV) ratio down as much as possible. So if you’re a first time buyer, get saving for as large a deposit as possible, as you will need at least 10 per cent. People looking to switch mortgage deals need to reduce their LTV by overpaying on their mortgage, perhaps using some savings that you will not need in the near future.

“The other thing borrowers must do is pay your bills on time. Lenders are looking at credit files very closely so check you are up to date on your payments with everything – mobile phone bills, utilities, etc. It is always worth checking your credit file before applying for a mortgage.”