Homeowners hit by credit crunch

By Steve Slater

LONDON (Reuters) - Millions of homeowners face sharply higher mortgage costs with big banks and regional building societies raising rates and tightening lending criteria as a global financial crisis feeds through to consumers.

Some of the leading lenders, including HBOS HBOS.L, Nationwide and Lloyds TSB (LLOY.L), increased interest rates on their main products this week, continuing a trend among the big names in recent months.

Smaller lenders are also restricting lending and withdrawing products at an unprecedented rate.

The message is clear: lenders want to scale back asset growth and only deal with the most credit worthy customers, in stark contrast to the relaxed lending in past years.

"The free availability of credit that we've seen for the past few years will all but disappear and that will be the pattern of the next two or three years," said Louise Cuming, head of mortgages at price comparison site Moneysupermarket.

"Lenders have quite openly admitted that they are looking to protect their margins rather than do volume lending, and we're seeing that in the pricing," she added.

Hardest hit will be first-time buyers and 1.4 million borrowers coming off short-term fixed rate deals this year.

But "quite a lot of pain and shock" will be felt more widely, according to Ray Boulger, technical manager of mortgage broker Charcol. He estimated between 2.75 million and 3 million homeowners will be coming off some sort of deal this year -- whether fixed rate or tracker.