Homebuyers frozen out by loans crunch

Published 12th Feb 2009

Homebuyers are being left out in the cold by banks and building societies that have all but shut the door on the property market.

While some homeowners are revelling in historically low rates, many others are suffering from a massive mortgage shortage.

Any would-be buyer with a tiny deposit is stuck, as are homeowners who want to remortgage but have seen their equity fall away. The self-employed and those who have missed repayments will also find it nigh-on impossible to get a deal in the current climate.
Cold shoulder: People looking to take out a mortage are being turned away by lenders


Since the credit crunch began, the number of mortgages on offer has slumped from 30,107 to 2,672. Those banks and building societies who are lending mortgages are putting tougher conditions on anyone who wants to borrow.

So while it can seem as though the more generous lenders have deals for those with a small deposit, when it comes to taking these out, borrowers find they are left out in the cold.

In the past year, house prices have dived by a fifth and surveyors say that in some regions they are being forced to reduce values by more than a third, compared with the peak in August 2007.

The huge falls have made it a buyers' market, but while many first-time buyers are keen to snap up a good deal, they are finding moves scuppered by a mortgage shortage.

At the peak of the market, there were 34,800 new buyers a month. In November 2008, there were just 12,400.

Before the lending crisis, the average new buyer put down just a 10 per cent deposit, but today they are expected to put down 18 per cent. Although house prices have fallen in this time, it means first-time buyers are having to find, on average, an extra £7,000.

Borrowers have also reported that some of the best deals are not actually available. For example, Lloyds TSB has advertised a market-leading deal - 5.69 per cent for those with a 10 per cent deposit.

But even those with a perfect history of repaying loans, credit cards and bills have found they have been turned away, while some have been asked to stump up a bigger deposit in order to get that rate.

The way banks and building societies calculate what they say you can afford is a lot stricter. In the past few days alone, Barclays and Yorkshire BS have got tougher.

David Hollingworth, of fee-free brokers London & Country, says: 'To get some of the rates that are available, you need a combination of a great credit score, a big deposit and quite a lot of disposable income.'

But it is not only first-time buyers who are being caught out. The plunge in house prices has come at a time when lenders have put in place more tiers on their rates.

Generally, those with a 40 per cent deposit get the cheapest deal, up to 25 per cent you get a slightly worse one, then above this the rates get progressively worse until 90 per cent - when you will be lucky to get any kind of deal at all. And it can make a huge difference in terms of your monthly costs.

Monthly repayments on a typical £150,000 25-year loan would be £711 for someone with a 40 per cent deposit. But with less than a 20 per cent deposit repayments would be £841. On a 10 per cent deposit, and assuming you can get the Lloyds deal, you would pay £938.

This problem is exacerbated by falling property prices. Increasing numbers of homeowners have been given a nasty surprise when they look for a new deal, because surveyors have wiped a huge chunk off the value of their home.

Lack of competition means that the mortgage market has radically shifted in the past 18 months.

In recent years, Halifax secured a fifth of all outstanding deals and Nationwide BS a tenth. Abbey and Lloyds TSB had 9 per cent each, and Northern Rock 7 per cent.

But in the past 12 months, three big names have dominated mortgage lending: Abbey, Barclays and Lloyds TSB.

Barclays claims to have cornered 36 per cent of new mortgage lending in the past year. But the average deposit it demands has grown to a whopping 53 per cent of the property price.

Lloyds, the other big home loan provider in the credit crunch, also has an average 53 per cent deposit from existing borrowers, but 37 per cent from new customers

No major lenders will say what percentage of their customers were first-time buyers, though Barclays admitted that 'very, very little' of its new business came from this sector.

Before the credit crunch, the average deposit was 19 per cent. Now it is 26 per cent - meaning borrowers would just qualify for 75 per cent loan-to-value, where rates start improving.

Homeowners with less than 25 per cent equity in their homes are faced with one of three options.

They can either face up to the fact that if they remortgage, they will have to pay a much higher rate, stump up more cash to put more equity into their home, or, as many are doing, sit on their lender's standard variable rate.

Self-employed homebuyers now have just two lenders to turn to - Mortgage Works and Platform - after all others pulled out of the market.

Source: ' Daily Mail '

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