Widows restricts terms to counter home loan stampede

SIMON BAIN

Scottish Widows Bank said yesterday it was accepting new business "only on quite restricted terms" after being overwhelmed by demand for home loans, as the credit famine starts to bite across the mortgage market.

Brokers said the mortgage squeeze was set to intensify, following yesterday's revelation that a £5bn Bank of England interbank lending lifeboat was five-times subscribed.

Scottish Widows is among lenders whose rates have appeared in "best buy" tables, prompting a flood of applications from the wave of borrowers whose low-cost fixed rates are this year coming to an end, in a shrinking market.

Susan McDonald, a bank spokeswoman, said the mortgage market was in a unique phase, with rates changing rapidly and being withdrawn quite quickly.

"What is happening at the moment is that the bank is taking about two-and-a-half times the number of applications we normally take. We have changed some of our rates, other people are changing their rates just as quickly, and it ends up we are getting into some of the best buy tables. We are a small player and we do our own underwriting, so we are struggling to cope with the demand."

She added: "We have had to withdraw some of the fixed-rate offers to try to stem the inflows of applications, but from our particular position it has got nothing to do with getting the underlying funding or the cost of funding." Borrowers whose deals are coming to an end this year are being advised to start looking for a new deal up to six months early, and securing an offer by paying a valuation fee.

Melanie Bien, at Savills Private Finance, said the Bank of England subscription showed the underlying strains.

"It will make lenders even more wary about lending to each other, so there is likely to be even less liquidity going forward."

The Financial Ombudsman Service has warned that the credit crunch can be expected to find its way into complaints received by firms.

The FoS's principal ombudsman, Tony Boorman, says this will happen "in part simply because customers in financial hardship can be expected to look more critically at the services and charges of lenders".

Boorman told a Council of Mortgage Lenders seminar: "Much as the stock market falls earlier in the decade helped expose mis-selling of investment products, so credit restrictions today will expose doubtful lending practices and poor customer service in the lending sector."