Thrifty Loans

Major lenders are beginning to scrap 100% plus mortgage deals. The controversial mortgages that allow borrowers to borrow more than the value of a house are being pulled.

Abbey and Alliance & Leicester have both ended their 125% deals, and this has followed some lenders scrapping 100% deals before Christmas. From about in one in three lenders offering 100% plus mortgages before Christmas, now only around 10% do.

Mortgages over 100% are often taken out by first-time buyers desperate to get on the property ladder, but without the cash resources to do so. The money above the house’s value is used for stamp duty, other fees and setting up home, and they have no need to find a deposit. The problem is that they are instantly in a negative equity situation, made even more dangerous by house prices that are currently falling.

Mortgage companies have been criticised for making these mortgages available, and at last they seem to be giving up under the pressure. However, it is more than a conscience that is stopping the lenders. They are pulling back from lending to higher risk borrowers, and they are struggling to find the funds to lend themselves.

Alliance & Leicester scrapped its ‘Plus Mortgage’ range, and was followed by Abbey (the UK’s second biggest mortgage lender) and Coventry Building Society announcing that their deals were being pulled this Friday. Northern Rock, which has been criticised more than most for continuing to offer these deals, is likely to follow suit. Birmingham Midshires would then be left as the only 125% provider, and it is unlikely to want to be left on its own.

Ray Boulger, of mortgage advisers John Charcol, warned: “If a borrower gets into difficult with little or no equity in their home, they’ve got nowhere to go.”

Further mortgage problems are expected as more people come off cheap fixed rate deals. Tory spokesman Philip Hammond said: “If any major lender decides to discourage customers from renewing when their fixed terms are up, that’s bound to exert upward pressure on rates across the market. Some people, particularly those with poor credit records, are sadly likely to find they are unable to continue with their mortgages.”

Related posts:

1. Improvements to specialist mortgage range by Alliance and Leicester
2. New improved specialist mortgage portfolio from Alliance & Leicester
3. End Of Cheap Deals Could Cripple Homeowners
4. Availability is biggest hurdle for those looking for a mortgage
5. Rock Axes 125% Mortgage