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Building Societies Return To 90% Lending?

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http://www.ft.com/cms/s/0/880c8fc6-67ff-11...?nclick_check=1

Building societies are showing a renewed appetite to offer loans for 90 per cent of a property’s value as competition begins to creep back into the market for mortgage borrowers with small deposits.

The number of mortgages available to borrowers with a 10-per-cent deposit has risen by 21 per cent since the start of June, according to Moneyfacts.co.uk, the product comparison website. Societies including Britannia, Cambridge, Earl Shilton, Saffron and Leek United have launched high loan-to-value mortgages in the past month, helping to improve the purchasing power of first-time buyers.

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There is a risk to doing some of this of course... building societies in the wake of falling rates have struggled to maintain their savings rates to a greater degree than the main banks who are more diversified. While I haven't seen the new products I suspect some have taken the view that the downside risk in prices is sufficietly negligable to allow them to offer 90% loans at higher rates... this then allows them to offer greater savings rates and maintain their savings balances.... if their view of the downside risk of house prices is wrong then they could end up in a worse position... but if they do nothing then capital losses caused by more loans going bad coupled with erroding savings balances mean these insitiuations will struggle anyway.

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2 weeks ago:

It doesn't take a rocket scientist to work out that with interest rates at a historic low of 0.5% there is only one way they can go. So what next for first time buyers and existing mortgage holders? Fix? Cap? Track? Many borrowers are wondering if it's even possible to get a deal at all in this climate.

Last week, figures from Halifax - Britain's biggest lender - showed that house prices rose 2.6% in May to an average £158,565 - their fastest rate for seven years. Numbers from Nationwide showed prices were up 1.2% in the same month. It is the first time both indexes have risen together since August 2007.

But the news is yet to filter through to lenders who are slashing and burning their mortgage product ranges and rates, leaving borrowers with less choice than ever.

Woolwich, Lloyds and RBS have all withdrawn loans for purchases over the last month and have not replaced them. Gone is the Lloyds five-year fix at 6.59% for borrowers with a 10% deposit and its two-year fixes at 4.49% and 5.89% for those with a deposit of 25% and 15% respectively.

Other lenders are waving attractive rates and deals around but not actually letting customers have them. A Sunday Times investigation found that in April, HSBC cut rates for borrowers with deposits of just 10% but admitted last week that of the 12,000 applications above 75% of the property purchase price, only one in five borrowers received funding.

Even if you can stump up a hefty deposit (we're talking 30% to 40%) you are not guaranteed a happy ending. Large loans or applications for interest-only mortgages tend to attract a negative outcome at the moment. Of course this is double maddening if you have paid an 'arrangement fee' and then don't get it back. None of this is helping the constipated mortgage and property markets.

Brokers surveyed by the Sunday Times are finding a higher number of applications being turned down. Savills Private Finance reported about 30% were being rejected, against 20% a year ago.

John Charcol said lenders had been surprised by the strength of the market and were using up mortgage funding faster than anticipated. Estate agents added that buyers were interested in bargains but transactions were falling through as they failed to secure funding.

Ray Boulger, of mortgage broker John Charcol, said the increase in price had been driven by a lack of competition and by new rules under which lenders have to set aside more capital to cover high loan-to-value mortgages. "The cost to the lender of making one 90% LTV loan available can be four or five times the cost of offering a mortgage at 60% LTV," he said. "We're in a situation where the more lending a lender does at 90% the less lending they are able to do overall."

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Slight increase in 90% mortgage availability

Category: Mortgages

Date: 03 July 2009

Figures from Moneyfacts.co.uk have revealed that the number of 90 per cent loan-to-value (LTV) mortgages has increased slightly in the last month.

There are now 119 such deals from banks and building societies, up from 101 at the start of June.

While there were far more mortgages that required just a ten per cent deposit a year ago, the small relaxation in lending is positive news for first time buyers or potential homeowners who do not have a sizeable deposit.

“It is encouraging to see that products in the 90 per cent LTVs are creeping up,†said Darren Cook, analyst at Moneyfacts.co.uk.

“The increase is not enough to signal that mortgage providers are returning to a healthy or normal appetite to lend.

It is more of an indication that they are re-expanding their product ranges again after reducing them to a bare minimum, when the future prospects and attitudes towards risk looked extremely bleak.â€

Hilary Osborne guardian.co.uk, Saturday 13 June 2009 00.05 BST

Mortgages for first-time buyers slow to a trickle

There are only 3% of the products available to property ladder newcomers that there were two and a half years ago

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Good news!! :) the sooner we get back to 100% morgages the better!!!

Once the banks start lending again like before everything will be fine :)

Your username says it all :rolleyes:

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The mortgage rates on 90 per cent loan-to-value deals also remain high, with some lenders charging more than 7 per cent.

I think your being a bit over optimistic with this.

Yes they might be offering but no one can afford to borrow at this rate.

They are rationing. It's just publicity to show willing, but really they aren't interested. Now if you find the majority of 90% deals at say 5% or 4% then we are back in business.

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Last week, figures from Halifax - Britain's biggest lender - showed that house prices rose 2.6% in May to an average £158,565 - their fastest rate for seven years. Numbers from Nationwide showed prices were up 1.2% in the same month. It is the first time both indexes have risen together since August 2007.

Green Shoots!!!

Thank God!! the panic is over!

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Good news!! :) the sooner we get back to 100% morgages the better!!!

Once the banks start lending again like before everything will be fine :)

For 2 months at the most till the economy really hits the wall as interest rates have to rise and government spending is cut by 20%.

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Britannia have an abysmal savings rate in spite of their ads that say how they are there for the savers. I have withdrawn my money from them and if others do the same - they will have to ask an even higher rate for these 90% loans :angry:

Edited by olliegog

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I think your being a bit over optimistic with this.

Yes they might be offering but no one can afford to borrow at this rate.

They are rationing. It's just publicity to show willing, but really they aren't interested. Now if you find the majority of 90% deals at say 5% or 4% then we are back in business.

Why would it be unaffordable.

A staggered lending where interest varies according to LTV is exactly what we need (I can spot the potential for abuse in it, but it's better than a simple flat rate). If you are 90% plus then you should be paying a significant premium for it - not least for the risk to the bank but also for the encouragement to reduce that LTV by overpaying.

If you have 90% plus deals at 4 or 5% interest then it's a joke - they should be priced to reflect the risk, and given even the biggest bull does not think that prices will be rising much in the next 3-5 years, then the risk is significant, even in the event of stable prices that the bank may not recover all of its money back. So price it accordingly....

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Why would it be unaffordable.

A staggered lending where interest varies according to LTV is exactly what we need (I can spot the potential for abuse in it, but it's better than a simple flat rate). If you are 90% plus then you should be paying a significant premium for it - not least for the risk to the bank but also for the encouragement to reduce that LTV by overpaying.

If you have 90% plus deals at 4 or 5% interest then it's a joke - they should be priced to reflect the risk, and given even the biggest bull does not think that prices will be rising much in the next 3-5 years, then the risk is significant, even in the event of stable prices that the bank may not recover all of its money back. So price it accordingly....

How many people do you know could afford a 150k mortgage at 7%+?

If your taking out such a big loan you shouldn't be buying.

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I think your being a bit over optimistic with this.

Optimistic?

I'm practically suicidal*, I'm so doomy.

But someone has to link to these bull-bytes since the mods banned anyone who was off message. I'm just doing a public service. :)

*Suicide is painless, if one does it by proxy.

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Why would it be unaffordable.

A staggered lending where interest varies according to LTV is exactly what we need (I can spot the potential for abuse in it, but it's better than a simple flat rate). If you are 90% plus then you should be paying a significant premium for it - not least for the risk to the bank but also for the encouragement to reduce that LTV by overpaying.

If you have 90% plus deals at 4 or 5% interest then it's a joke - they should be priced to reflect the risk, and given even the biggest bull does not think that prices will be rising much in the next 3-5 years, then the risk is significant, even in the event of stable prices that the bank may not recover all of its money back. So price it accordingly....

spot on rachman. Banks should definitely continue to price in risk, and reflecting that with higher rates for higher LTV loans.

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How many people do you know could afford a 150k mortgage at 7%+?

If your taking out such a big loan you shouldn't be buying.

rubbish. Just because it does not work for you, does not mean it's not right. Every single one of my mortgages has been for more than £150K.

I was on £42.5K when I took out the first one. It was easily affordable. It was also cheaper than renting it.

I'd love to know what you think about people who have had £500K plus mortgages....

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Optimistic?

I'm practically suicidal*, I'm so doomy.

But someone has to link to these bull-bytes since the mods banned anyone who was off message. I'm just doing a public service. :)

*Suicide is painless, if one does it by proxy.

Well done, we do need to see these articles and someone has to post them for discussion. I see one bull on this thread but TBH, judging by the quality of their posts I doubt if they find reading that easy.

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rubbish. Just because it does not work for you, does not mean it's not right. Every single one of my mortgages has been for more than £150K.

I was on £42.5K when I took out the first one. It was easily affordable. It was also cheaper than renting it.

I'd love to know what you think about people who have had £500K plus mortgages....

He asked:

How many people do you know could afford a 150k mortgage at 7%+

Not:

How many people do you know could afford a 150k mortgage

I know MANY people who can afford their 150K mortgages now and I know MANY people who would be repossessed if their IR was 7%+. And guess what... the are the same people.

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I know MANY people who can afford their 150K mortgages now and I know MANY people who would be repossessed if their IR was 7%+. And guess what... the are the same people.

Exactly.

If myself and the wife stayed in employment and didn't have a wage cut 7% would be manageable but would be a squeeze and we have no where near a £150k mortgage.

I would also add how many FTB could afford 7% which lets face probably most buyers needing a 90% mortgage would be.

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He asked:

Not:

I know MANY people who can afford their 150K mortgages now and I know MANY people who would be repossessed if their IR was 7%+. And guess what... the are the same people.

that 150K mortgage was fixed at 5.8%. I did my arithmetic and it was still relatively affordable at 10%. I suspect most people are not on the bones of their @rse and are overstretched. People just like to think that all those buyers have been reckless and that they'll all be on the street in a fortnight - they're not. Most people ARE sensible.

I always model the finance on up to 10% and make sure I have sufficient headroom - but that's because I am naturally a cautious bugger and because life has this knack of kicking people in the balls when they take too big a risk. That's why I am not an 'entrepreneur' - I don't like risk. But, notwithstanding that, saying that 150K is unaffordable, or rather the (what I assumed was a) an almost rhetorical question, then the answer is - almost all of my London mates and their families could afford 150K at 7%+ (from what I know about their finances). Even outside it, almost all of the sensible ones (i.e. not those who just drink their wages every weekend and are complete muppets) would have no problem with that - they do all earn reasonable money though...).

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We are all bankrupt after Labour's sell out of the economy. Anything a building society "announces" isn't worth the paper it's scrawled upon. If they had any shred of decency a mass apology would have been a better announcement wouldn't it?

But no :ph34r: this wont happen because they seem to think that despite the governments lack of resolve to correct this criminal activity they can simply continue...

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that 150K mortgage was fixed at 5.8%. I did my arithmetic and it was still relatively affordable at 10%. I suspect most people are not on the bones of their @rse and are overstretched. People just like to think that all those buyers have been reckless and that they'll all be on the street in a fortnight - they're not. Most people ARE sensible.

I always model the finance on up to 10% and make sure I have sufficient headroom - but that's because I am naturally a cautious bugger and because life has this knack of kicking people in the balls when they take too big a risk. That's why I am not an 'entrepreneur' - I don't like risk. But, notwithstanding that, saying that 150K is unaffordable, or rather the (what I assumed was a) an almost rhetorical question, then the answer is - almost all of my London mates and their families could afford 150K at 7%+ (from what I know about their finances). Even outside it, almost all of the sensible ones (i.e. not those who just drink their wages every weekend and are complete muppets) would have no problem with that - they do all earn reasonable money though...).

agree with the jist, but i think as a result of the bubble we've seen a general complacency and more chances taken or rather a shifting of the goal posts as far as what 'sensible' constituted as the risk-reward element was weighed up. ie buying at historically high affordability and income multiples vs the reward from capital gains. Plus the ability to tough out periods of redundancy/unemployment thanks to low interest rates and payment protection cover.

We may be in a period of low interest rates [greenspans great moderation] coupled with arguably better employment rights, and expansion of the public sector and so-called 'jobs for life' mean that many borrowers with these factors were feeling more secure despite a very low savings rate.

It strikes me that even sensible homeowners would be at greater risk of moderate interest rate fluctuations and redundancies, but for the various safety nets that are in place.

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that 150K mortgage was fixed at 5.8%. I did my arithmetic and it was still relatively affordable at 10%. I suspect most people are not on the bones of their @rse and are overstretched. People just like to think that all those buyers have been reckless and that they'll all be on the street in a fortnight - they're not. Most people ARE sensible.

I always model the finance on up to 10% and make sure I have sufficient headroom - but that's because I am naturally a cautious bugger and because life has this knack of kicking people in the balls when they take too big a risk. That's why I am not an 'entrepreneur' - I don't like risk. But, notwithstanding that, saying that 150K is unaffordable, or rather the (what I assumed was a) an almost rhetorical question, then the answer is - almost all of my London mates and their families could afford 150K at 7%+ (from what I know about their finances). Even outside it, almost all of the sensible ones (i.e. not those who just drink their wages every weekend and are complete muppets) would have no problem with that - they do all earn reasonable money though...).

Well you do sound sensible; perhaps if more people were like you we wouldn't be in the do-do.

But most people are not like you; maybe you just have equally sensible friends or a group of friends lucky enough to have bought in at the right time. Whereas a lot of my friends (London too), all in the 30-35 age range and earning 35-50K pa have stretched themselves to the limit to get on the ladder in the last 3 years - 1 or 2 bed flats on IO mortgages - and their mortgages are 4 or 5 times salary. I've chatted to several and they couldn't afford 7%, no way.

Whilst I appreciate you saying that most people are sensible, it doesn't require most people to go into arrears or be repossessed for serious HPC, just a small(ish) percentage. And there is the nub; I would argue that a lot of sensible people lost their senses in the last 3 years.

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Britannia have an abysmal savings rate in spite of their ads that say how they are there for the savers. I have withdrawn my money from them and if others do the same - they will have to ask an even higher rate for these 90% loans :angry:

I've recentyl done the same and gone to Skipton BS. 3.87% gross until end feb next year.

Looked at their mortgages too. To see if they were being frivolous. Maximum they offer is 85% ltv. And only fixed rates, not offering trackers.

Seem to be doing the sensible thing so went with them.

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