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Postal order stamps on the scene

There have been two significant pieces of news in the past week that

could potentially be black clouds on the horizon of an otherwise

buoyant mortgage market.

First, two leading life companies are slashing bonuses, which could

lead to potential endowment shortfalls. Second, two major lenders are

restricting the loan to value offered in certain “blacklisted” areas

in the South-east and London.

NatWest and Alliance & Leicester are the two lenders which are

restricting the LTV in selected postcode areas in the South-east and

Greater London. Their decision has caused outcry from industry

professionals and other lenders alike.

The lenders say their change in policy is based on economic

uncertainty and the belief that property could be overpriced in some

areas.

Halifax was quick to criticise this move and is to raise the issue

with the Council of Mortgage Lenders to urge others not to follow

suit.

Halifax is in an ideal position to look at house price inflation in

selected areas as it runs its own house price index.

Other major lenders, including Abbey National, HSBC, Woolwich and

Cheltenham & Gloucester, say they have no plans to introduce

restrictions.

House price increases are likely to be more subdued this year after

the boom in 2001 when prices rose nationally by 12 per cent, with an

increase of 17 per cent in Greater London. There have also been

indications that there could be some downward adjustment in areas

where prices have increased most and, against this backdrop, the move

by NatWest and Alliance & Leicester does not boost confidence.

However, there are plenty of lenders which will be happy to lend

without restriction in these blacklisted areas so consumers should

not panic. The alarm bells will only really start ringing if there is

a wholesale change in lending policy among all major lenders.

Last week&#39s announcement by Norwich Union that bonuses have been

slashed came as alarming news to its millions of policyholders. This

came after Scottish Widows announced it is cutting bonuses.

Last year, the DTI said over five million people have the potential

for a shortfall on their endowment policy and the majority are doing

nothing about the problem. This is very worrying in light of these

latest announcements.

There are three options – paying the shortfall out of savings,

increasing premiums into their existing policy or transferring the

potential shortfall portion on to a repayment basis. By taking the

repayment option, they may be able to remortgage in the process of

switching the shortfall and save on the overall monthly mortgage

cost. There are still excellent deals available. Schemes offering

assistance with valuation, admin and legal fees can keep down the

outlay.

But the mortgage market is still alive and kicking. Many people are

starting to realise their biggest asset could be the ideal route to

reducing monthly outgoings or raising capital for major projects.

Purchase enquiries are also high, indicating that consumers have the

confidence to move on up the property ladder.

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