by Mark Johnston
The number of 90% loan to value mortgages has been in steep decline since 2006. These types of home loans are usually associated with first time buyers as they enable people with smaller deposits to secure finance for a new home.
Those will larger deposits tend to be either very well off or more likely have a lot of equity in a property they already own. A 90% loan to value mortgage only requires a 10% deposit compared to the average 40% that lenders are asking.
A new report has shown the decline in figures from 245,000 back in 2006 to only 28,000 in 2009 which is an 89% reduction. This has left around 100,000 would be first time buyers will no ability to get onto the housing market.
Every since the credit crunch, lenders have practically made it impossible for first time buyers to get a mortgage. Many lenders stopped offering 90% mortgages altogether. These mortgages were deemed way too risky for lenders that had suffered the most during the financial crisis. In order to reduce the amount of losses that they were suffered on a defaulted loan, lenders asked for more security to be put down against the house. Although this gave the banks and building societies the buffer they were looking for, it meant the end of the dream of being able to buy their own house.
Angel Mas, head of mortgage insurance at Genworth Financial said: “Not only does this have wide-reaching ramifications for the health of the UK economy as a whole, but the deposit barrier represents a new obstacle to social mobility. Ironically, there has never been a better time to get on the property ladder as interest rates and property prices are at an all time low. Yet the current deposit requirements ensure home ownership is kept firmly out of reach for all but a privileged few. This report examines in detail the disparity between supply and demand and draws on a wide range of industry data.”
Steve Wilcox, of the Centre for Housing Policy, University of York, went on to say: “While the availability of capital for a deposit has been able to ease the affordability requirements for first time buyers in the past, the absence of a deposit was not, in itself, an absolute barrier to home ownership. Now, without some innovation in policies or products, the ‘wealth barrier’ to accessing home ownership is set to become just as important as the income barrier has been in the past.”
Ben Wilkie, a mortgage expert at What Mortgage pointed out that it was difficult for first time buyers to get a mortgage even at a high interest rate because of the amount of money needed to put down a deposit.
With average house prices at around £165,000, a first time buyer would need to find £16,500 even if they could secure a 90% mortgage. The average amount needed for a mortgage in now 25% which would mean finding over a £41,000 deposit which would be impossible for most people.
Mr Wilkie didn’t expect lenders to go back to 100% loan to value mortgages as they had offered before the credit crunch but he did call on UK lenders to provide more 90% deals with easier access and lower interest rates.
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