Mortgage Hangover?
Banks and building societies are, some would say belatedly, beginning to be choosier about who and how much they lend in mortgages. Their more cautious approach and tighter lending criteria is the hangover to the decade or so of over indulgence in cheap and plentiful mortgage money.
Several mortgage providers, in recent weeks, have reduced the maximum loan-to-value (LTV) that they are prepared to extend to applicants. In addition some lenders have either stopped lending 100 per cent of the property purchase price or they are putting strict conditions when offering such a mortgage.
Moneyfacts.co.uk, the Internet mortgage comparison service report that Britannia, Egg and Pi will no longer lend 95 per cent of a property’s value. Rather their new maximum limit is to 90 per cent. This means that their customers at least must come with a 10% deposit. So it could be back to the savings account for many new buyers.
The Lloyds TSB mortgage arm, Cheltenham & Gloucester has gone even further reducing – from 90 per cent to 75 per cent maximum loan to value ratios on its “caseflow” mortgages. These are in effect fast-track loans on offer to highly credit-worthy borrowers through brokers.
All this extra caution is being driven by fear. Fear in the lenders of the big ‘R’ word; repossession. There is already an increase in home repossessions this year as more and more borrowers fail to meet higher mortgage costs. Predictably the banks and building societies are reducing the risk of future repossessions by demanding extra commitment from borrowers and simply lending less.
The Alliance and Leicester have pulled back their loan to value maximum by 5% per cent to 90 per cent, while Scottish Widows Bank cut the loan to value ratio on its graduate and key worker mortgages from 102 per cent to 95 per cent. Smaller building societies such as Cumberland, Yorkshire and Newcastle stopped offering 100 per cent loan to values unless the applicants can bring a guarantor on board with them.
It is definitely a sign of the times that the lenders are trimming back the risks. They probably went too far in the previous five years or so when 95% loan to value became standard and 130% was not unheard of. There is real fear of a collapse in the housing market leading to negative equity situations and repossessions soaring. To balance this gloomy prognosis however, standard rate mortgages are more affordable with the lower interest rates coming through following the Bank of England cuts. They probably won’t be the last cuts either and the boost to competition can only benefit the mortgage buyer with a good credit rating.
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