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Homeowners high and dry as LTVs drop

Monday 25th February 2008

With high loan-to-value (LTV) mortgages vanishing from the market, some homeowners could be left with a problem, it has been claimed.

In recent weeks both Birmingham Midshires and Northern Rock have withdrawn their 125 per cent LTV products - the last of the major high street lenders to do so.

This leaves those on introductory offers facing the prospect of being unable to remortgage once their low-rate period expires.

Denise Harvey, mortgage analyst at financial information service Moneyfacts, explains that many providers are looking to minimise their risk amid fears of a housing market slump.

She contends that, in an environment of rapidly rising house prices, mortgages of more than 100 per cent of the value of the property remain a worthwhile proposition to the lender.

But with expectations for the near future forecasting a plateau or fall in valuations, Ms Harvey notes reluctance to take on such a risk.

"In recent months many lenders have reduced their maximum LTVs, although there is still an abundance of 95 per cent products," she says.

"However, with average property prices in some parts of the country reaching upwards of £300,000, how many first-time buyers can afford the £15,000 deposit needed?"

The warnings could come as a blow for first-time buyers who recently faced emerging from fixed-rate introductory periods into a climate of elevated interest rates.

But financial services group Blevins Franks argues that the developments could come as a timely reminder to Britons who have borrowed beyond their means.

Commenting on similarly tightened conditions in the US, overseas mortgages manager Matthew Weston says: "In a way it serves to educate mortgagors not to borrow recklessly."©

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