Fears over UK homeowners
LONDON, Feb 21 (Reuters) – Fears are growing that homeowners with 100 percent-plus mortgages could run into trouble after a string of lenders, including Northern Rock, scrapped deals that allow people to borrow more than the cost of their home.
Hard-pressed first-time buyers with little or no deposit will also find it harder to get onto the housing ladder as banks withdraw home loans aimed at young people who lack savings.
Leading indices show house prices have been falling in recent months and many experts expect, at best, the market to be flat during 2008.
The 125 percent mortgage market has shrunk to minute proportions with only one lender remaining, while the more standard 100 percent home loan is also under threat.
“When there’s double-digit house-price growth, it doesn’t matter so much if you take on a relatively high LTV (loan-to-value) because by the time you come to re-mortgage, your LTV will have effectively fallen because you will have more equity in your home,” says Melanie Bien, a director at independent mortgage broker Savills Private Finance.
“But if you borrow the full amount or more than the value of your home and house prices don’t rise, or — even worse — fall, you could have even more negative equity when you come to re-mortgage. And if fewer lenders will look at this sort of business, you could be in trouble.”
Northern Rock announced on Thursday that it would follow the lead of Alliance and Leicester, Abbey, Coventry Building Society and Godiva Mortgages in leaving the combined mortgage and loan market — under which people can borrow 100 percent of their property’s value in a mortgage and a further 25 percent through a personal loan.
It will no longer accept applications for its “Together” mortgage range from 8 p.m. (2000 GMT)
“This isn’t Northern Rock restricting its product range because of its current status: almost all lenders have pulled them in the last few days,” says Katie Tucker, technical manager at independent broker John Charcol.
“It looks as though mortgages over 100 percent will have gone the way of the dodo by the end of next week.”
Only Birmingham Midshires Solutions, which lends solely through intermediaries, remains in the market.
Tucker said people with existing mortgages of more than 100 percent LTV should try to overpay as much as possible before their deal expires.
“Their chances of having a re-mortgage option when the time comes are slim,” she added.
At the same time, 100 percent deals are becoming more expensive and far harder to find.
Just three months ago, 41 of 123 prime mortgage lenders offered 100 percent-plus loans — a third of which have since withdrawn their products, leaving only 28 providers.
And some of these will only lend to professionals or under specialist arrangements such as shared ownership schemes.
“This is yet another example of lenders continuing to tighten their belts even further in what has become a vastly different mortgage market from this time last year,” says Julia Harris, an analyst at Moneyfacts.co.uk.
“Prospective first-time buyers are those that are going to be most affected: not only are there fewer options for those without a deposit but they will also find themselves having to pay a larger premium for the added risk that the lender is taking on.”