Britain's largest lenders have begun to withdraw from the 100 per cent mortgage market, raising their prices and increasingly refusing to lend any more than 90 per cent of a property's value.
According to statistics from Moneyfacts.co.uk, the comparison site, around a third of lenders have stopped offering home loans of 100 per cent or more since November, while some have pulled back even further.
"In November, 41 of the 123 prime mortgage lenders were offering mortgages at 100 per cent loan to value (LTV) or more," said Julia Harris of Moneyfacts.co.uk. "Since then, almost one-third of those lenders have withdrawn their products from the market, leaving only 28 providers. Those that still operate in this market include those that lend 100 per cent or more only to professionals or as part of specialist arrangements such as the shared ownership scheme.
"This is yet another example of lenders continuing to tighten their belts even further in what has become a vastly different mortgage market from this time last year."
This week, a number of lend-ers, including Alliance & Leicester and Abbey, pulled out of the 125 per cent mortgage market, leaving just Northern Rock and BM Solutions willing to lend such high amounts.
Melanie Bien, a director at the independent mortgage broker Savills Private Finance, said: "It is now much harder for those with little or no deposit to get on the housing ladder. However, there are still deals available for those who feel they aren't overstretching themselves with a 100 per cent LTV deal and who want to get on the ladder now."
Ms Bien said Bank of Ireland still offered a two-year, fixed-rate 100 per cent mortgage, at a rate of 6.79 per cent, with a modest £499 fee. However, rates come down significantly for borrowers who have a 5 or 10 per cent deposit.
With house prices now falling, Kate Tucker of Charcol says people who have recently taken out 100 per cent mortgages should do everything they can to make overpayments to their mortgage, to ensure they are not in negative equity by the time they next come to remortgage.
David Fallon, 27, from Bury in Lancashire, bought a property with his girlfriend at the top of the UK property boom in December; mortgage broker London & Country helped him to find a 110 per cent mortgage with an interest rate of 6.19 per cent. Although he acknowledges there is a risk of falling into negative equity, Mr Fallon said he is planning to make significant improvements to the property, which he hopes will prop up its value.
"I have a three-year fixed-rate mortgage with Godiva Mortgages of £116,000," he said. "The house was a wreck when we bought it and work is still going on to put in things like central heating. The local housing market is pretty flat, and our position may not be very strong, but we are going to sit it out. We are hoping that doing up the house will make it worth more."
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