If you are first time buyer and you opt for a mortgage with Nationwide, then the answer is unfortunately, yes!
We may also see other mortgage lenders following suit.
Nationwide Building Society will no longer offer competitive mortgage deals to you if you don't have a deposit of at least 25%, as part of a dramatic clamp down by some mortgage lenders.
The move is a blow to those of you first time buyers struggling to save for a deposit and comes amid the virtual disappearance of high loan-to-value mortgages.
In effect, it means that
Nationwide is now effectively rejecting applications for loans for more than 75% of a property's value, by pushing up interest rates on loans above this level (
and virtually wiping out the benefits of the last Bank of England base rate cut!)
Until today, if you had a deposit of 10% or more, you were to get Nationwide's best mortgage deals. This week the cost of borrowing for loans of between 75% and 95% of the value of a home will rise by 0.2%; however, the rise only affects new borrowers.
Nationwide blamed their decision on higher funding costs in the mortgage market, as well as a cooling housing market and their caution comes at a time when mortgage experts are trying to predict the winners from the credit crunch; they believe that Abbey could come out on top because of the funding available to its Spanish parent, Santander, through the European Central Bank.
- Can I still get a 100% plus mortgage?
Yes, but your options are now fairly limited.
Nationwide's move deals a further blow to you cash-strapped first-time buyers, for whom getting on the property ladder without a deposit has become almost impossible following the virtual extinction of 100% mortgages.
After an exodus of six major lenders, including Northern Rock and Alliance and Leicester, from the 100% plus mortgage market, there is now only the Dunfermline Building Society that still offers you the option of a 100% plus mortgage.
Scottish Widows Bank, which cornered the market for loans for up to 110% to professionals and graduates, has now cut its maximum loan-to-value to 100%.
The new limits squeeze out many of you homeowners, who on average borrow 80% of your property's value. Reducing the loan-to-value limit shields mortgage lenders from falls in house prices, which can leave you unable to pay off your mortgages.
On a £150,000 home loan, you would now be forced to save up £37,500 to get a competitive rate of 5.68% on a mortgage from Nationwide.
Before Friday, the cheapest rates were available to borrowers taking out loans for up to 90%, equivalent to a £15,000 deposit on the same loan size.
The change will also affect those of you already with Nationwide and who wish to remortgage.
Although they will still offer loans for up to 95% of a property's value, they will carry a much higher rate of interest, at 6.32% for a two-year fix.
- Will other lenders follow suit?
It remains to be seen whether other mortgage lenders will require an increase in a deposit amount from first time buyers but it can't be ruled out. Other major mortgage lenders are expected to cite the credit crunch as they raise margins after years of cut-throat competition.
However, smaller building societies which have always financed their mortgages from deposits have emerged almost unscathed by the credit crunch.
One small lender that is proving to be a winner from Northern Rock's demise is its next-door-neighbour, the Newcastle Building Society.
It benefited from Rock's depositors looking for a new home for their savings, and now, impartial mortgage advisers say that it has some of the best deals in the marketplace.
Melanie Bien, director at independent mortgage broker Savills Private Finance, said:
"The move shows that even the biggest lenders are being forced to reassess their attitude to risk. Lenders are keen to attract borrowers with relatively low LTVs because they are regarded as being lower risk, and rewarding borrowers in this position with more competitive rates is one way of achieving that. It is good news for those with sizeable deposits but less encouraging for others, particularly first-time buyers, who don't have much in the way of a deposit."
Nationwide traditionally only lent to prime mortgage customers, however its strategy grew bolder in 2006, when it began selling
near-prime mortgages, introduced better deals to borrowers with small deposits and began securitising its debt for the first-time.
So, though things are definitely a bit harder if you are a first time buyer, there are still some good first time buyer mortgages out there.
To discuss your mortgage needs, why not talk to an adviser who, with access to all the latest mortgages and personal advice they often help and make moving you mortgage an easier process.
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