100% mortgages becoming a thing of the past
9th April 2008
100% mortgages may have become a thing of the past, at least on a temporary basis, as the last of these deals were pulled off the shelves by the Abbey bank. Over recent months an increasing number of lenders have been pulling no-deposit mortgages such as 100% and even 125% mortgages off the shelves, and the last of these, other than those requiring a guarantor, have disappeared this week.
These 100% mortgages have been popular with first time buyers over recent years, enabling many to get onto the property ladder even without the benefit of a deposit to put down on a new home. For first time buyers raising a deposit has been difficult or even impossible, as this group of buyers has no previous property from which to take equity to put towards a deposit.
Finding a 100% mortgage in the past was not a big problem for the average first time buyer, and with house prices having rocketed over recent years many new property purchasers were confident that they would soon find that even with a 100% mortgage the equity in their property would quickly build up.
However, this has now all changed. Other than lenders that require guarantors, all mortgage lenders are now looking for some form of deposit from borrowers, so even first time buyers will have to raise at least the minimum deposit requirement. Moreover, the deposit requirement has actually increased for many lenders, with a wide range of lenders looking for far more than the traditional 5% deposit in order to gain access to their more competitive deals.
In fact, the situation has got to the point where some industry experts are questioning whether the 95% loan to value ratio mortgage is set to become a thing of the past, with some lenders demanding 10%, 25%, and even 40% by way of a deposit in order to provide affordable lending to those looking for a mortgage. Whilst these levels may be achievable by those with previous properties from which to take equity once sold, the average first time buyer could be facing real problems.
In addition, those taking out high loan to value ratios, such as 95% mortgages, could find that the predicted falling house prices could leave them facing negative equity over the next couple of years.
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