According to a recent research led by consumer website Moneyfacts.co.uk, the availability of mortgages for would be home buyers has significantly dropped compared to this time last year. Prior to the credit crisis, the proportion of 100% or low deposit mortgages was just under 75%. One year on and the figure has dropped to a mere 29.2%.
Mortgages for would be homebuyers looking to borrow 100% LTV are practically non-existent at totaling only 0.5% of mortgages available in September 2008, says IFAOnline.co.uk.
Prior to the crunch, competition set mortgage rates and great deals could be found at 95% LTV says Darren Cook at Moneyfacts.co.uk. However, now lenders’ primary lending criteria rests on the risk associated with lending to any particular borrower.
Mr Cook goes on to say, “Lenders are focusing much more on risk. They are making less products available to borrowers with a small deposit and making the few that are available much more expensive.”
The knock on effect happens when potential buyers, particularly first-time buyers, are rejected due to poor credit score, insufficient deposit amount, or both. As more borrowers become unable to obtain a mortgage, home sellers are faced with the prospect of having their home remain on the market for longer periods or reducing the asking price.
Lenders are still offering attractive deals, however, in order to take advantage you must be able to front a large deposit. For example, buyers with a deposit of 30% will be privy to a wider range of products to suit their needs.
Without a large deposit you will most likely be seen as “too risky” to lenders. For first-time buyers this could be difficult news to accept. Could this be a blessing in disguise? If 100% mortgages were still readily available in a housing market that continues to decline, many first-time buyers would find themselves possibly with negative equity by the end of the year. If analysts’ predictions are accurate, 2009 could also see house valued continue to decline.
The last thing any homeowner needs is negative equity. So, first-time buyers out there, start saving, work on improving your credit, and perhaps next year you’ll have the funds to make a large deposit, take advantage of lower house prices, and be on the property ladder when the market eventually rebounds, not whilst it’s on the decline.
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