Mortgage lenders change their terms

Mortgage lenders have been criticised for unexpectedly changing their terms and conditions. Northern Rock, for example, has announced that it is tightening its lending policy on flexible mortgages. In the past, customers could overpay each month without penalty and then borrow back the amount overpaid later or take a payment holiday. You can still do both subject to tighter criteria.

However, Northern Rock customer Joan Doyly complained to The Sunday Telegraph that, when she applied to borrow back some of her mortgage money, "they wanted to know what myself and my husband were earning, how much tax we paid, what savings we had and why we wanted this money. It felt invasive why should they know what I plan to spend the money on?"

But in the current economic climate, it's difficult to share her outrage that the bank that operated an open-door policy on its bank vault for years has finally decided to be a bit more cautious. Moreover, Northern Rock customers shouldn't let the changes put them off overpaying a mortgage, given that today's low interest rates may not last. Do set aside a quick-access, rainy-day cash fund of three to six months' salary first, though.

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Nationwide is also in the line of fire. It stands accused of punishing new customers after it announced that it was changing its standard variable rate (SVR) for new mortgages. These won't be covered by its old guarantee that its SVR (the rate your mortgage moves to once your fixed or tracker rate deal runs out) will never be more than 2% over the base rate. Now for new deals it will be 3.99%.

"It is a shame that a lender which more than any other prided itself on treating customers equally is effectively introducing a two-tier system," says Melanie Bien of Savills Private Finance in The Observer. Bien's complaint, echoed by other industry figures and journalists, is that Nationwide is punishing new customers while existing ones get to enjoy the old 2% guarantee.

But this isn't strictly the case. The 3.99% SVR applies to all new mortgage deals, whether for first-time customers or existing ones seeking to renegotiate their current deal. In fact, the 2% guarantee will now only apply to existing customers who don't re-mortgage or re-negotiate when their current deals end, says Neil Faulkner on Lovemoney.com.

So given the best two-year fixed rate available is 2.89% from HSBC and that's in return for a 40% deposit existing customers are better off on Nationwide's SVR capped at 2% over the current base rate of 0.5%. New customers should bear in mind they won't face the 3.99% rate until their mortgage deal runs out. By then the SVR may have changed again. So it shouldn't be a deal breaker when choosing a new mortgage.