Watchdog bares its teeth

The Office of Fair Trading this week turned its spotlight on the unrestricted right of moneylenders to raise their interest rates at will. The OFT announced plans to make lenders rewrite their contracts outlining the justification for moving interest rates where borrowers are locked in beyond the term of a fixed-rate deal.

John Bridgeman, Director-General of Fair Trading, will threaten to seek injunctions against financial services companies that do not comply with the new guidelines. OFT's particular targets are specialist non-status lenders that offer mortgages to people with poor credit histories and charge borrowers locked in beyond the term of fixed-rate deals, hefty interest rates and prohibitive exit charges.

But it's not just the non-status lenders who exploit their customers; major lenders are also taking advantage of their loyal borrowers. According to a survey by mortgage broker London & Country, long-standing borrowers are not being given the same cheap mortgage deals as newcomers. Home loan packages offered to existing customers by banks and building societies are typically far worse than those available to new borrowers.

Among the good guys are lenders such as C&G, Coventry and Alliance & Leicester which offer existing customers who want to remortgage the same terms and conditions available to new customers.

Elsewhere, Bradford & Bingley, Britannia and Chelsea building societies do not routinely offer any of the attractive mortgages that are available to new borrowers to their existing customers.

Among this week's new deals, Independent Mortgage Collection has launched a novel mortgage package that tracks the rising value of the property. Each year, on the anniversary of the loan, the house is revalued by the lender in accordance with increases recorded by the Halifax House Price Index applied regionally.

If the recorded rise in the value of the house means that the borrower now falls in a lower loan-to-value band, they benefit from an immediate reduction in their mortgage rate. The new package will appeal to borrowers without a deposit who are keen to get on the housing ladder before they are priced out. The lender is prepared to advance up to 105% of the value of the house subject to the usual status checks.

And the Halifax has launched a new package aimed at first-time buyers. The package comes with a 2% discount for the first 18 months, during which the interest rate charged is 5.74%. Maiden homebuyers who prefer the certainty of constant repayments in the early years can opt for a mortgage deal fixed at 6.99% for three years. Other helpful features include a cash refund worth 1% of the loan and it will accept a deposit of just 3% of the value of the property, instead of the typical 5%.

For those who can afford to put down a larger deposit, the Britannia building society is offering a two-year fixed-rate deal at 5.89% for borrowers with a down payment of 25% of the value of the property, Borrowers with the usual 5% deposit get the same deal fixed at 6.14%. The new mortgage comes with a 12 months free unemployment insurance cover.