End Of The Road For 125% Mortgages
The recent announcement that Northern Rock is to remove its 125% ‘Together’ mortgage from the shelves may be the final nail in the coffin when it comes to sizeable mortgages for over and above the traditional 95% value of the property. Over the past week or two more and more lenders have been announcing that they will be removing 125% mortgages – which comprise 95% mortgage and a 30% unsecured loan – from the shelves, with the effects of the credit crunch continuing to see credit conditions worsen.
These huge mortgages have now been scrapped by some of the biggest lenders in the mortgage sector, including Abbey and the Alliance and Leicester. Northern Rock held fire for a few days, but has now joined the string of lenders that will no longer offer these huge mortgages, with one Rock official stating: “Our present lending appetite has changed. And demand for this product has now fallen to negligible levels, so we are withdrawing it.”
In the past 125% mortgages have proven popular amongst first time buyers and other financially strapped homebuyers that need to raise extra cash for additional costs such as improving the property, furnishing, etc. However, with these mortgages now being scrapped by major lenders both existing and new homeowners could face problems. For those on existing 125% mortgages things could prove financially difficult when it special offer comes to an end and they need to remortgages. As well as facing high rates they will also be classed as being left with a large unsecured loan, which will impact upon their ability to borrow.
A broker from John Charcol stated: ‘If a borrower gets into difficult with little or no equity in their home, they’ve got nowhere to go.’
Over recent years, and particularly in the current financial climate 125% mortgage have come under fire because the borrower is instantly saddled with a huge amount of debt and is also instantly placed into negative equity because they have borrowed more than the value of their property.
Even the availability of 100% mortgages has tumbled over recent months, with only one in ten mortgage lenders now offering 100% mortgages now compared to around a third of mortgage lenders offering them towards the end of last year. In fact, many lenders have not only cut the mortgage that offer the full value or over the value of the property, but some are asking for an even higher deposit that then traditional 5% – further evident of the tightening lending conditions that have resulted from the global credit crunch.
According to experts the main reasons why so many lenders have decided to withdraw from offering mortgages of 100% and more are fears over lending to higher risk customers and also difficulties in getting finance due to the high cost of inter-bank lending and difficulties obtaining finance for loans themselves.
One analyst said that existing homeowners with these huge mortgages could really struggle when their deal comes to an end, stating: ‘If these deals do not return, borrowers are going to have to work a lot harder to reduce their debt.’
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- Fixed Rate or Variable Rate Mortgage
- Home sellers struggling to sell their properties
- Mortgages – some frequently asked questions
- Mortgage brokers banned due to false applications
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