Homeowners hit by credit tests

Thousands of homeowners could be forced on to expensive and uncompetitive standard variable-rate (SVR) mortgages when their current fixed-rate deal comes to an end because of tough new credit-worthiness tests being imposed by UK banks.

"Customer profiling", as the banks term it, involves an in-depth examination of the borrower's finances including how much equity they have in their home, their level of monthly income and how frequently they remortgage. A forecast is then made as to the likelihood of the borrower failing to keep up their mortgage repayments.

Industry experts warn that a high-risk existing borrower coming to the end of a fixed-rate deal would be automatically moved on to a more expensive SVR.

Francis Ghiloni, director at financial information service mform.co.uk, said: "It tends to penalise those already worse off. If you have significant equity, are a good credit risk and have a large income you will be the kind of customer that a lender does not want to lose. On the other hand, if you are a young borrower with low earnings and little equity, you are less likely to be offered another deal, which means going on to an expensive SVR."

The average SVR stands at 7.2 per cent. This would mean a borrower paying 4.5 per cent on a £200,000 mortgage would have to find an extra £328 a month.