If you are a first-time buyer looking for a mortgage, then you could be facing a financial headache as the market for 100%-plus mortgages shrinks.
This week, four mortgage lenders have pulled their deals that offer mortgages topped up with an unsecured loan. The Alliance and Leicester, Abbey, Coventry Building Society, and Godiva Mortgages are all pulling out of the 100% plus mortgage market.
The offers allowed you to get on the property ladder without a deposit, but were also criticised for letting many of you take on too much debt.
The downside to these moves are not just a lack of options open to you as a first time buyer, but it could also lead to higher repayments when you come to remortgage.
- Lenders are tightening their belts!
The first lender to move was
Alliance and Leicester, who removed its 125% PlusMortgage on Tuesday. This offered you a mortgage of up to 95%, together with an additional unsecured loan.
Stephen Leonard, director of mortgages at Alliance and Leicester, pointed to "market conditions" as the reason for their decision.
Coventry Building Society announced it will stop selling its MOREgage product on Friday. Colin Franklin, head of sales at the Coventry, said applications for this kind of mortgage had fallen to "a negligible level", making it "no longer cost-effective" to offer.
Abbey then said it was ending on Friday a pilot scheme for 125% mortgages that it started in the autumn, while Godiva Mortgages also said it was withdrawing their similar product.
Northern Rock yesterday scrapped its controversial range of Together mortgages that allowed customers to borrow more than the value of their home. From midnight last night customers seeking to borrow up to 125% of the value of their homes using a mixture of personal loan and traditional mortgage under the Together brand would be told it was no longer available, the lender said.
"Our present lending appetite has changed," said a bank spokesman. "And demand for this product has now fallen to negligible levels, so we are withdrawing it," he added.
Birmingham Midshires, which is owned by the Halifax, also remains in the market, but was reviewing their situation this week.
Julia Harris, analyst at moneyfacts.co.uk, commented on the moves by the four lenders:
"In November 2007, 41 of the 123 prime mortgage lenders were offering mortgages at 100% LTV or more. Since then almost one third of those lenders have withdrawn their products from the market leaving only 28 providers. Those that still operate in this market include those that only lend 100% or more to professionals or as part of specialist arrangements such as the shared ownership scheme.
"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."
Harris said that if you are a first-time buyer, you will be most affected by this move; she said:
"With house prices starting to cool and some commentators predicting a further drop as the year unfolds, perhaps it is time to make the most of the current high savings rates and save for that deposit."
- So, how does this affect you?
Some 20,000 of you take out
100% plus mortgages each year. The latest moves will affect those of you intending to enter the market and those of you needing to
remortgage, who will face higher repayments due to a lack of similarly competitive deals.
The deals had been popular with those of you wanting a loan on top of your mortgage, as many of you don't have the money to pay a deposit or wanted to make a start on your home improvements.
Louise Cuming, of price comparison site moneysupermarket.com, said:
"With so many prominent lenders exiting the 100%-plus mortgage market this week, consumer confidence is going to be knocked again. First-time buyers will be hit hardest, with repayments likely to shoot up when they come to remortgage. At a time when consumer confidence is so low, it is disappointing that lenders are adding to the panic."
The effect of the credit crunch means that 100% deals are also becoming harder to find, and the issues and controversy around the 100%-plus mortgages could lead Northern Rock to leave the market when under public ownership, according to mortgage broker Ray Boulger.
But if you are still keen on a
100% plus mortgage, then there are options open to you:
Bradford and Bingley are still offering 105% and 110% mortgages (discounted and fixed rate) for first time buyers with relatively competitive rates (7.5% - 7.7% APR)
You should also use an impartial mortgage adviser as they often have relationships with lenders that mean you may be able to get a better deal that you could get by going direct.
Also most advisers can search all mortgage lenders, some you may never have heard of, to find the best deal for your situation.
(Please note that articles on MoneyHospital do not constitute regulated financial advice. The articles are intended to provide general personal financial information. We urge you to consult an Independent Financial Adviser (IFA) before making any important decisions about your finances. All rates are correct at time of printing but are subject to change without notice.)
Your mortgage; to fix or not to fix