Difficulties in Getting Mortgage Increase

Cheltenham & Gloucester, part of Lloyds TSB has announced that it will be requiring homeowners to save a deposit of 10% before buying a house. This follows the news that mortgage lenders will no longer be offering 125% mortgages.

The move is sparked by problems in the capital markets. Since the American subprime crisis it has been more difficult to sell on mortgage debt. Furthermore, with the threat of falling house prices, there is an increased chance of negative equity amongst homeowners. When prices are rising rapidly (as they have been in the UK) a 100% mortgage soon become a 90% LTV. However, in the current climate mortgage lenders have been increasing the cost of mortgages and tightening the lending criteria.

Mortgage experts fear that if this trend continues it will be difficult for people to get on the property ladder. Also people who currently have a 95% or 100% mortgage will be faced with a much more expensive mortgage when they need to remortgage at the end of their mortgage contract.

Other Mortgage Lenders

  • Nationwide recently said it would penalise lenders who did not have a 25% deposit
  • Alliance & Leicester will lend a max of 90% LTV
  • Britannia Building Society will lend a max of 90% LTV
  • Royal Bank of Scotland will stop lending to those who have a deposit or equity in the property of less than 5 per cent of its value.

Personally I can see the need for a small deposit. But 10% is too much for many people, it will take too long for a first time buyer to save the necessary amount.