Shift to larger deposits hampers housing market recovery
Financial data provider, Moneyfacts.co.uk, has published new figures showing that 25% of mortgages available in the UK to new borrowers require a deposit of at least 40%.
Those who can only manage a deposit of 5% or less have a mere 21 home loans to choose from, compared with over 1,200 in February of last year.
Borrowers who can put down 10% of a property’s value are better off, with an offering of 148 different home loans.
However, options on 90% loan-to-value (LTV) mortgages have shrunk even in the past two months, 92 products having disappeared, and are down from 1,197 in February of last year.
According to Moneyfacts, 60% of all mortgages in the market now carry a maximum LTV of 75%, up from 54% last month.
Banks and building societies have been tightening their lending criteria since the onset of the credit crisis and collapse of Northern Rock, in the autumn of 2007.
The problems have been compounded by falling house prices; negative equity is now a major issue for mortgage lenders who ensure that homeowners have substantial amounts of equity in their homes, as a cushion against this increased risk.
Moneyfacts spokeswoman, Michelle Slade, sums up the situation by saying that lenders are looking to cherry pick the best customers.
As a result, improvements in affordability for potential first-time buyers are being offset by higher deposit demands.
According to Halifax, the average house price to earnings ratio was down to 4.56% in November 2008, from a peak of 5.84% in July 2007, but today’s lending criteria mean the improvement is unlikely to kick-start the market.
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