It has been revealed that on a figure basis, mortgage lenders have started to ease up slightly on the requirements they need for granting a home loan.
Statistics display a recent rise in the number of deals demanding smaller down- payments. However, two-thirds of mortgage deals still require borrowers to put down a deposit of at least 25%.
As a result, the country has witnessed mortgage deals increase by 7% in the past month, with more needing only a 15% or 20% deposit.
Ray Boulger, from mortgage brokers firm, said lenders were responding to competitive pressures.
“As lenders find the pool of customers who can put down a 40% deposit is shrinking, they are being forced to ask for smaller deposits,” he said.
Darren Cook from a financial company stated that lenders have realised that they are not in a position to be picky: “We are seeing a number of mortgage providers slowing reducing their strict criteria and are increasing the number of products available to those that can raise a 15% deposit, be it at a higher initial interest rate.”
Life in the slow lane
When the property market was booming a year ago, more than half the available mortgages still needed a deposit of only 10% or less.
However, last autumn witnessed mortgage rationing by the UK’s banks and building societies which became much more aggressive and unforgiving when handing out loans.
By the end of 2008, traditional 10% deals were becoming rare, with only 96 of them left. Last December, more than half of all home loans needed at least a 25% deposit.
The number of deals needing a 15% deposit has risen though, from 209 at the start of last December to 272 now. In addition, the number of 20% deposit loans which are available has increased from 105 to 143 in the past month.
Lenders have therefore seen life both in the fast and slow lane, and realised with the financial crash, they are in for a bumpy ride, so have relaxed their loan strategies.
“What we have seen over the past few months is a change in lenders offering their best interest rates at 70-75% loan-to-value rather than 60%,” said Mr Boulger.
Cook said: “Banks consider a 75% loan to value as a conservative benchmark and it is generally where they see themselves getting their money back if a property is repossessed. With more mortgages becoming available at higher loan to values, it can be seen that a number of banks are regaining some confidence within the housing market.”
However, he reminded that the slump is no way over: “Banks are far from predicting the end of the housing slump and are hedging their bets by increasing the number of their best mortgages to those who are fortunate to have a 40% deposit.”
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