Ninety per cent mortgages return to the high street
So banks loosen their lending a little – at last. But strings are attached to the larger loans, and it pays to have a big deposit.
Sunday 17 May 2009
The credit crunch and the collapse in house prices have put paid to the 100 per cent mortgage deal. However, of late, there has been a thawing of the mortgage market, and a handful of lenders are opening their books once again to higher loan-to-value (LTV) deals.
Several are offering mortgages at 80 and 85 per cent, and a handful have taken the plunge, offering first-time buyers – and those with little equity – a chance at a 90 per cent LTV mortgage. But although these deals do exist, they come at a price.
The best rates in the market remain those attached to deals with a low LTV, 75 per cent or below. This is because lenders are still being cautious and are trying to control their lending by selecting low-risk candidates. While larger lenders, such as HSBC, First Direct, Barclays, HBOS and Abbey, are loosening their purse strings, smaller building societies are still guarded, largely offering products suited only to those who have big deposits.
Richard Barker, the product manager for mortgages at Norwich and Peterborough Building Society, says: "We are being fairly cautious and controlling the level of lending. As credit is more difficult to come by, we just have to be that little bit more careful about who we lend to and how much we lend."
This is largely due to funding issues. The low base rate and incredibly competitive savings market means that enticing savings customers to hand over their cash is currently no easy feat. Smaller lenders have traditionally been dependent on depositor cash; when it comes to wholesale money markets, they do not have the clout of larger lenders to secure good deals. Consequently, borrowing is more expensive for them and, in turn, for their borrowers.
Despite the continuing preference for low LTVs, the number of deals with higher LTV values has expanded. Before the housing crash started in 2007, most products, especially for first-time buyers, were 90-95 per cent LTV. However, over the past few months, a much wider range of LTV values has emerged. Products are offered at 60, 70, 80 and 85 per cent, with different interest rates, giving borrowers an element of choice.
Different rates are offered depending on the fees you choose to pay and any incentives. Traditional mortgage lending often made a loss on the initial fixed-rate period and the lender would only profit later on in the mortgage term. But, as David Black from financial information service Defaqto says: "Nowadays the savvy lenders are getting a reasonable return throughout the length of the mortgage via either the rates or the upfront fees charged for setting up the home loan in the first place. It's not unusual to see a lender have as many as eight different rates for the same mortgage. You've got to get your calculator out to work out the true cost."
As well as considering the cost of fees, you must take into account the cash value of any incentives offered and weigh them against the slightly elevated rates offered beside them. Some lenders are offering to pay 1 per cent of the purchase price of your property, stamp duty costs or arrangement and valuation fees, but whether it is a good deal depends entirely on the amount you are borrowing and the interest rate charged.
For those in search of LTVs at the high end of the scale there is light at the end of the tunnel. The bigger lenders are offering a range of mortgages at 90 per cent LTV, but they don't come cheap. Halifax has one of the lowest rate 90 per cent LTV fixed-rate mortgages at 5.69 per cent for five years. This is much higher than the lowest rate available for those with some equity in hand. In addition, early repayment charges are a hefty 3 to 5 per cent for the first five years, keeping you tied to that rate. And the sting is in the product fee, at 2.5 per cent. Should you choose not to pay the fee as a percentage, you can opt to pay a potentially lower £495 flat fee, but the rate will go up to 6.14 per cent. Mr Barker says: "The best deals are at 60 per cent LTV and products offering 70 to 80 per cent will have slightly inferior rates. For anything above that the rates will go up. You will pay a premium for going higher, but that's to be expected really."
Higher rates, longer fixed periods and substantial fees seem to be the standard when it comes to 90 per cent LTV. One exception is HSBC's two-year, fixed-rate at 4.99 per cent, the lowest 90 per cent LTV rate on the market. The fee is high at £1,499, but you can opt to up the rate to 5.49 per cent and only pay £199. So what's the catch? You've got to be one of their Plus or Premier current account holders. The Plus account costs £12.95 per month, which, considering you could potentially borrow £400,000, is not huge, plus you get the added benefits of free travel insurance and breakdown cover, among others. The Premier account, on the other hand, is free but it comes with a required minimum annual deposit of £100,000 or a minimum investment of £50,000 with the HSBC group. Not easy for the average first-time buyer to realise.
James Thorpe, a spokesman for HSBC, says: "There are some strings attached. Customers will have to bring their banking to us, but we don't think that's enough of a catch to put them off this very competitive deal."
To be in the running to get a 90 per cent LTV mortgage, you've got to be an extremely low credit risk. This means having a pristine credit record, free of any County Court Judgements, and being in secure employment. You must also be in a good position in terms of your perceived affordability. Lenders have moved away from lending on the basis of income multiples and instead are concentrating on outgoings and incomings. This measure, which takes into account all expenditure – from household bills to food – is deemed more indicative of whether or not you can afford the mortgage. Improving your score does not guarantee you will be granted a mortgage. However, if you are borderline, making cuts, such as switching your utility providers to lower your bills, can ensure you fall within the affordability bracket required. Another way of improving your score is to clear any regular loan or credit-card debt before applying for a mortgage.
Although 90 per cent LTV finance is available, the current climate means that taking it comes with the risk of slipping into negative equity. The movements of the market are unpredictable and so if you are going to opt for a 90 per cent LTV mortgage you need to be thinking long-term.
As Nici Audhlam-Gardiner, the mortgage director at Abbey and Alliance & Leicester, says: "People must be aware in terms of buying a property at the moment that there is likely to be a further fall in prices. While people may think now is a good time to get into the market, they've also got to be prepared to be in there for the longer term rather than the short term. It's really just common sense."
Independent Partners: Get fee-free expert mortgage advice and find the right mortgage deal for you.
Crowd-to-let: How crowdfunding sites can give investors a slice of the property market for £500
General Election 2015: How you vote next week could affect your finances
Social tenants locked into energy tariff for 40 years
Winter heating underpayment brings summer pain
Five Questions On: GB Energy's new tariff
- 1 Katie Hopkins gives rare glimpse of sensitive side with heartfelt open letter to her children penned in case she dies from epilepsy
- 2 Rihanna's Met Gala dress took one Chinese woman 2 years to make, was reduced to omelette meme in 2 seconds
- 3 Top Gear: Jodie Kidd, Philip Glenister and Guy Martin 'in advanced talks' to replace Jeremy Clarkson and co
- 4 Women think Irish men are the sexiest, survey finds
- 5 Florida couple forced to register as sex offenders for having sex on public beach
In defence of liberal democracy
General Election 2015: Post-election 'shambles' looms as 70 per cent of voters say SNP 'should not be able to veto UK government policies'
The Rothschild Libel: Why has it taken 200 years for an anti-Semitic slur that emerged from the Battle of Waterloo to be dismissed?
General Election 2015: UK will be 'run for the wealthy and powerful' if Tories retain power, Labour warns
General election live: SNP suspends two members for disrupting Labour rally
Schools forced to act as 'miniature welfare states' with teachers buying underwear and even haircuts for poor pupils
iJobs Money & Business
£60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...
£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...
£27 - 35k + Bonus + Benefits: Guru Careers: A Management Accountant is needed ...
£40-50k + Benefits.: Guru Careers: A Project Manager / Business Analyst is nee...
Day In a Page
Located in the University area, this semi-detached five-bedroom home is arranged over three floors - there's even a rear garden and off-road parking too.
Only a few minutes' drive from the charming town of Marlow, this two-bedroom home sits on the private riverside estate of Harleyford.
This detached four-bedroom home in Middleyard is arranged over two floors, with features that include a wood-burning stove and bespoke oak staircase.
In a row of eight detached Georgian residences, this five-bedroom home offers views of The Sound, Mount Edgcumbe and Cornwall from its impressive veranda and full-length balcony.
If you love cooking for friends this two-bedroom flat - complete with views of the iconic Battersea Power Station and an open-plan kitchen/dining area - will go down a treat.
Located above Grasmere village, this five-bedroom home is arranged over three floors and offers countryside views across Grasmere Lake towards Silver Howe.
Surrounded by the Western fells, this five-bedroom Georgian home retains many original features including panel-plastered ceilings, sash windows and fireplaces.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B, subject to change of use permissions.
A former period coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, office, kennels and an outbuilding that's currently used as a gym.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
This four-bedroom home has exposed brick chimneys and a vaulted ceiling in a breakfast room that's ideal for summer entertaining - the doors open to the patio and garden.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business