Mortgage Restrictions

by Mark Johnston

New research published on mortgage criteria and lending practices with in the UK draws the same conclusion each month, that restrictions on securing a mortgage are way too strict and therefore means that most potential home owners are unable to get a foot on to the property market.

Many people who previously would have been able to take advantage of the great deals on the market at the moment are not able to as they can not find lenders asking for low enough deposits or they can not meet their lending criteria, forcing them to rent. The mortgage market is in real danger of stagnation again due to lenders restrictive affordability requirements.

Many experts agree that lenders criteria for mortgages are too strict for the average consumer to meet and therefore they blame lenders for holding back the mortgage market and causing it to fall, as a lack of lending means a lack in buyers.

In some cases requirements have become so tight that home owners have given up trying to move, which means the property market will remain in the same place as it is now.

The best choice of mortgages are still to be found within the 75% loan to value (LTV) band and the proportion of deals within this band has fallen to a 2 year low. However   recent figures show that less than half of all new mortgages secured in August held a loan to value (LTV) that was under 75%. Even though a loan to value (LTV) of 75% seems low compared to some of the larger requirement around, on an average £150,000 property this amounts to a £37,500 deposit, which is far too high for the average person to be able to afford.

Although there has been activity in the mortgage market over the last few months it has been from re-mortgages and not from first time buyers, which has caused the buying and selling markets to stall.

The percentage of sales to first time buyers has dramatically decreased month by month and experts agree that lenders should try to ensure that their aspirations for property ownership can be met.

Michael Jones of the National Association of Estate Agents (NAEA) stated that the “financial services association (FSA) needs to step in and ease the strict lending restrictions that are stopping first time buyers getting on to the market”.

One lender in particular has recently eased its criteria for self employed mortgage borrowers, Northern Rock now accepts self employed borrowers who have been trading for 2 years rather than the 3 years they previously asked for. A spokesperson for the company said “the change to the self employed policy is in the interest of our customers and with in our risk appetite”.

Bernard Clarke of the council of mortgage lenders (CML) suggests that “we have simply moved to a more risk adverse environment. There is awareness that this can lead to stagnation in the market, but it is up to the individual lenders”.

Some analysts think that these restrictions raises the question as to whether these tougher conditions are aimed at getting rid of customers on low value rate mortgages that are unprofitable for lenders.

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