Mortgage Clinic: 'Will our daughter find a new 105% deal?'
'Our daughter took out a 105 per cent mortgage on a £175,000 flat in 2006, and she's now terrified that she won't find an affordable remortgage when her current deal ends in May. Her property has risen in value (about 8 or 9 per cent, she says), but not enough, we're afraid, for her to secure a manageable rate. Is she in trouble?'
WD, Wiltshire, by email
The past 10 days will have fuelled your daughter's fears. Nearly all 100-per-cent-plus mortgages (allowing first-time buyers to borrow more than the value of their home) have been withdrawn. Cheltenham & Gloucester, for instance, now demands that homebuyers have a minimum 10 per cent deposit, and NatWest has stopped offering mortgages for more than 95 per cent of a property's value.
The credit crunch is making it more costly for many banks to lend to borrowers at such high loan-to-values (LTVs). Factor in faltering house prices (they dipped by 0.5 per cent in February, says Nationwide), and you can see why lenders are wary.
"With rising house prices, borrowers would be able to remortgage on to a lower loan-to-value standard loan," says David Hollingworth at broker London & Country. Now they "can no longer rely on house-price inflation taking them into lower-LTV territory".
But your daughter is not a first-time buyer. She took out a 105 per cent loan in 2006, but the subsequent equity rise in her property should have put her in a position to take on a lower LTV, albeit not one attracting cheap loan rates.
John Hall at Westminster Mortgages says your daughter's 105 per cent deal probably comprises a 95 per cent mortgage (£166,250) and an unsecured loan of £17,500 – a total of £183,750. Set against an expected 9 per cent rise in market value (and two years' mortgage payments), she should qualify for an LTV of 95 to 98 per cent.
Rob Clifford at Mortgageforce says: "There are products available up to 97 per cent LTV (for example, Halifax offers a fixed at 6.29 per cent), but the usual remortgage perks, such as free valuation and free legal fees, will cost money." Getting to that 95-per-cent LTV mark will give her a better choice of deal, he stresses.
If the market sours over the coming months, though, and willing lenders begin to thin out horribly, your daughter has an alternative, says Katie Tucker at broker John Charcol: her current lender's expensive standard variable rate. "If this stretches her affordability, she could consider extending her mortgage term or temporarily going interest-only; and if she has a spare room, a lodger can help with income."
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