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June 14, 2009    

Demise of 90% LTV blocks first-time buyers

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by Gill Montia

The plight of would-be first-time buyers is highlighted by new research from Moneysupermarket.com.

According to the price comparison website, home loans requiring a 10% deposit have all but disappeared in the credit crisis with only 102 available today, compared with 3,124 in January 2007, a decline of 97%.

First-time buyers are also being penalised on interest rates with the average rate on a 90% loan-to-value (LTV) mortgage currently at 6.23%.

This compares with a typical 6.2% in January 2007, when the base rate stood at 5%, rather than today’s record low 0.5%.

The margin above base rate has therefore increased to 5.73%, compared with 1.2% two-and-a-half years ago.

For lenders, 90% LTV mortgages present a high risk in a market downturn and although there are signs that house prices are stabilising, few commentators are ruling out further falls.

However, extreme caution on the part of lenders could be self-defeating in this instance as first-time buyers are essential to a recovery of the market and by returning in volumes could help underpin prices.

Latest figures from the Council of Mortgage Lenders (CML) show that loans to first-time buyers increased by 11% in April, compared with March.

However, the average deposit required stood at 25% (unchanged from February) with those getting a foot on the property ladder typically borrowing £96,000.

Higher deposits mean that the average income multiple for a first-time buyer fell slightly to 2.96 times income, compared with 2.99 in March, while the amount of income committed to pay a first-time buyer mortgage was down to 15% in April, the lowest proportion since May 2004.

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