Changing face of UK mortgage market

The credit crunch has seen the UK mortgage market "changed completely", leaving it unrecognisable to the environment buyers would have experienced a year ago.

That is the conclusion of new research from price comparison website MoneyFacts.co.uk, which shows both a severe significant increase in rates offered on mortgages and a sharp downturn in the number and variety of mortgages available.

While there were a total of 13,027 mortgage deals on offer at the height of the boom in August 2007, this has now fallen to just 3,748.

Startlingly there are now zero 100+ per cent loan-to-value (LTV) mortgages on sale, while during the same period last year there were 11 in the market.

Just two lenders are still offering 100 per cent LTV mortgages, down from 33.

"One year ago the financial world changed completely as the credit crunch took hold. Today the world of mortgages is a completely different place," explains Michelle Slade, analyst at MoneyFacts.co.uk.

"The standard factors which usually determine the rates at which mortgage rates are set, including bank base rate, swap rates and London Interbank Offered Rates (Libor) are all much lower than this time last year, yet the rates on offer are much higher."

Interest rates have also increased substantially.

While the average cost of a two-year fixed-rate deal stood at 6.56 per cent during August 2007, this has now fallen to 6.90 per cent, having at one time been well over seven per cent.

The fee on the average two-year tracker mortgage has also increased from £1,024 to £1,063 over the same period.

"As house prices continue to fall and the risk of default increases, the lenders are pricing more for risk and as a result standard factors are not quite as influential on the rates as they once were," added Ms Slade.

Research from Nationwide shows average house prices stood at £183,898 in August 2007, while this had fallen to £169,316 in July this year.

Chris O'Toole