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Dave Beans

The Return Of 90% Mortgages

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http://blogs.telegraph.co.uk/finance/ianmcowie/100008855/return-of-the-90pc-mortgage-raises-questions-for-first-time-buyers/

Would-be first time buyers, frozen out of the housing market by cash-strapped lenders demanding 20 per cent or even 25 per cent deposits, are being offered pre-credit crunch style 90 per cent loan to value (LTV) mortgages again. But they might do better to wait for further falls in house prices, as data from the Bank of England, Nationwide Building Society and elsewhere suggest continued weakness in the property market ahead of Government spending cuts.

Only 47,185 mortgages were approved last month, compared to a typical total of nearer 80,000 in a stable market, according to Bank of England figures published this week. Property information website Hometrack, which had reported house price increases in 2.3 per cent of postcodes as recently as September, now says prices increased in only 0.1 per cent of postcodes – or one in a thousand. The number of new buyers registered as seeking properties shrank by 2 per cent in October and fell by another 4.3 per cent in November.

Even so, lenders claim there is real demand for 90 per cent mortgages; not just from would-be first time buyers but also existing homebuyers whose fixed term loans have expired and now seek to remortgage. Unfortunately, borrowers who can only provide 10 per cent deposits are regarded as a bad risk by increasingly nervous regulators, who impose daunting capital adequacy requirements on lenders, pushing up the price of high LTV mortgages.

For example, on LTVs of 90 per cent, Skipton Building Society is offering a three-year fixed rate at 5.68 per cent and a five-year fixed rate is 5.78 per cent. By contrast, borrowers who can produce a 35 per cent deposit – or show that much equity in their property – could fix for three years at 3.38 per cent or, with a 25 per cent deposit or equity, fix for five years at 4.08 per cent. All these deals are available for new mortgages and remortgages at an arrangment fee of £995. Ray Boulger of John Charcol said: “It is too early to take this as a sign that the mortgage famine is easing and we haven’t seen any other lenders returning recently to the 90 per cent LTV market. Even with Skipton’s new rates, the premium one now has to pay to borrow at LTVs above 75 per cent looks very high compared to before the credit crunch.

“I don’t expect the current differentials to reduce significantly for at least a couple of years. The main reason for the much larger differential between the rates offered for low and high LTV mortgages is not, as most people think, the credit crunch but the impact of Basle 2 regulatory rules.

“These require lenders to hold progressively increasing amounts of capital to support higher risk loans and LTV is considered a major factor is assessing risk. A lender has to hold around six times as much capital to support a 90 per cent LTV mortgage as one at 70 per cent. So the real cost of funding a high LTV mortgage is very expensive.”

Kris Brewster, of Skipton Building Society, replied: “As a mutual building society, we are committed to doing everything possible to help people achieve their home ownership aspirations. Recognising the plight of first time buyers and home owners who have seen the value of their properties eroded by adverse market conditions, we are offering 90 per cent loans in a controlled way, as part of a competitive package of options designed to meet a range of needs.”

But David Hollingworth of London & Country was pessimistic about whether many other lenders will accept deposits as low as 10 per cent again in the near future. He said: “Competitive offers at higher LTVs are very welcome but I think that it would be too much to hope that we are going to see a widespread trend of lenders returning to high LTV mortgages.”

Never mind the lenders; what should borrowers do? At this stage in the economic cycle, the best advice to would-be first time buyers is to avoid falling in love with the ‘home of their dreams’ for another year or so and use the extra waiting time to save up a bigger deposit. That way, they may end up paying less for the property and less for the loan.

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As house prices are relatively stable there is less risk for banks in lending 90% LTV.

The market sees, at most, a 5% drop next year which makes a 90% loan well within the bounds of prudence.

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There's already another thread on this.

They're are not returning, they never went. There's even 95% mortgages if you're willing to pay the ridiculous rates!

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= Office for Budget Responsibility =

The Office for Budget Responsibility (OBR), the Government's new independent forecaster, predicted that house prices would edge up 4.3pc in the current financial year before falling 2.7pc in 2011-2012.

They would then start rising again, the OBR said, by 1.9pc in 2012-13, by 4pc in 2013-14 and by 4.3pc in each of the following two years.

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I have to admit I did a AIP yesterday and first thing this morning a certain mortgage company was on the blinker to me at 9am trying to get things rolling straight away. I haven't even found a house yet!!!!! They seemed quite desperate to give me a mortgage ........so i'm not surprised by this post, something has changed.

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We've already done this one to death on another thread.

Did the 90% mortgage ever go away? I've got no problem with it - as long as the rate charged reflects the risk.

What's the rate? 0.5%? Thought not.

No it didn't.

Yes it does.

Non news event really.

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  • 311 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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