Tuesday, January 15, 2008

Deposits double from 5% to 10% (so affordability drops 50%)

Lenders raise deposits on buying homes

Two of Britain's biggest mortgage lenders, Alliance & Leicester and Britannia building society, have doubled the minimum deposit demanded from first-time buyers in the latest sign that banks are anticipating a downturn in house prices. Borrowers will have to pay a minimum deposit of 10% on the price of a property compared with 5% before. A typical first-time buyer with a £7,500 deposit can now only afford a house worth £75,000, instead of one worth £150,000. Big lenders such as Halifax, Abbey and Nationwide to continue to offer 95% loans.

Posted by drewster @ 01:00 AM (694 views)
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One thought on “Deposits double from 5% to 10% (so affordability drops 50%)

  • @drewster – some comments were made on this yesterday. This was a huge mistake by all the lenders (and probably the Mortgage Indemnity Insurers!). As the market increases the lenders should have some “circuit breakers” built in to the system. As affordability issues the loan book should be maintained and only liquidated loans replaced at some point. The way to do this is quite simply reduce the max LTV on the way up, by small percentages. The problem is that market share gets lost by doing this, so the pressure is on the management to maximise income flows by maintaining/offering high LTV. The theory would be that the average LTV would be fine – but we all know that more people get sucked in the higher the bubble goes, so i would love to know the tranches of loans offered at various LTV parameters (inclusive of MEWs). This is probably a big problem for Mortgage Express (B&B).

    I fully accept that this probelem has probably been exasperated by the mutuals being de-mutualised, and of course knowing WHEN to use these circuit breakers would have been a real challenge. But to do it now is reactive rather than proactive, and makes me wonder what the people in charge are actually paid for. You could probably realise we are pretty near a peak (in terms of time) when there are 125% LTVs being offered.

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