A blunder by the Halifax?

by Mark Johnston

Would be first time buyers are struggling to get on to the property ladder due to few lenders offering 95% loan to value (LTV) mortgages. However the guardian reported that there are approximately 31 of these products available, this is an increase from January 2011 which showed 24 products and just 6 were available in June 2009.

A financial data provider, moneyfacts showed figures that first time buyers looking for 90% mortgage deals have much more choice. There are approximately 244 products available to them at present, with only 77 products 2 years ago and 199 at the start of this year.

With this information in mind Melanie Bien of mortgage broker’s private finance, said “we are obviously seeing more activity in the 95% loan to value (LTV) products, but borrowers do need to be careful”.

One such product advertised on the Halifax website, purportedly intended for first time buyers, was charging interest of 8% above the base rate. The terms of this particular 95% loan to value (LTV) loan included an early repayment charge equivalent to 6% of the outstanding balance for the full term of the loan and offered a maximum loan of £7.5 million. The company said this appeared “by mistake”. A mortgage expert at Obligo, Chris Gardener said “if this product had been genuine, it would have been the hara-kiri of home loans”.

These particular products are highly dangerous to first time buyers and home owners alike, as rates can only go in one direction and repayment would be come unmanageable almost instantly. The fact the borrower is tied into the deal for 4-5 years increases the problem, with early repayment charges of 6%, means that the borrower can only get out of this deal by paying a big penalty.

Taking a 5 year tracker mortgage is a huge risk; a 95% loan to value (LTV) mortgage would make more sense over a 5 year fixed rate product.

Many mortgage brokers reacted with shock at this particular product as although there are some lenders that offer 95% loan to value (LTV) mortgages their interest rates range from 5.99% to 6.99% and are usually fixed rates to help protect the borrower against rising monthly repayments, if the base rate goes up.

Communication director, David Hollingworth of mortgage broker London and country stated he was sceptical of this product from the outset, adding that he thought it was clearly designed to set alarm bells ringing if processed as a genuine application and was not priced to attract customers.

The mortgage was later confirmed by the Halifax as a dummy product, as a 5 year base rate tracker used to stop borrowers applications being scrapped if they had applied for a product that had being withdrawn. The product was not live and was showing due to a system error. A spokesperson for the Halifax stated “there was an error that morning with 3 products appearing incorrectly on their intermediaries’ website”. The company stated their maximum loan to value (LTV) across their product range for new applications was 90%.

High loan to value (LTV) rates such as 95% are something that most first time buyers are crying out for, but not at any price.

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