by Mark Johnston
Following the financial crisis, many banks and building societies tightened their lending criteria to sure up their balance sheets. This meant that the number of mortgages available to borrowers reduced dramatically resulting in much less choice for consumers.
Now that lenders have improved their financials and made up for some of the losses that came about from the credit crunch, they have been able to ease some of the restrictions they put in place. Until recently, many lenders were asking for large deposits of 25% or more. In a bid to attract more first time buyers, banks and building societies have increased the number of products offered to borrowers with deposits of less than 25%. Since 2009 the number of mortgages available have grown from less to 2,000 to almost 2,500 in just one year. This is great news for borrowers with deposits of around 20% as they now have three times as many home loans available to them then they did in the past.
Less than half of all mortgages on the market require a deposit of 25% or more which is a sure sign that banks and building societies are relaxing their lending criteria and offering more loans to those with smaller deposits.
Even those with very limited deposits of say 10% have much more choice than they did. Although its very unlikely that we’ll see a return to the days when lenders offered 100% of mortgages and more, the choice to those with limited deposits or little equity in their current homes is improving.
Following the tightening up of lending criteria, there are actually more than double the number of mortgages with a 90% loan to value than there once were. That said, lenders are still very cautious about lending to high risk customers so borrowers need to have very good credit records if they are to secure the cheaper deals.
Michelle Slade, a spokesperson for a leading financial website said: “The availability of mortgages continues to improve and encouragingly it’s those for borrowers with a smaller deposit that are seeing the biggest increase in numbers. However, just because lenders have increased the number of deals available, it doesn’t mean that more mortgages are being approved. In fact latest figures from the Bank of England show another drop in the number of approvals in December 2010”
Ms Slade went on to say: “Although lenders’ windows may be full of best buy deals, it doesn’t mean they want to lend. Borrower affordability remains the key factor in lending decisions and lenders remain strict over which borrowers they will accept. Borrowers who have benefitted from record low interest rates for the last two years may be in for a shock when it comes to finding a new deal. Rising rates and the implementation of the Mortgage Market Review are likely to restrict affordability calculations further, meaning some borrowers will struggle to borrow as much as they need despite the increased number of mortgage products available.”
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