Only Finance.com® - The Lowdown on the Current Mortgage Market

Mortgages - The Lowdown on the Current Mortgage Market

The credit crunch has had noticeable effects on the global market, not least the housing industry. In the last few weeks alone, the mortgage market has changed drastically, with the demise of 125% mortgages across the board, as well as more banks demanding higher deposits – in some cases, for instance with Cheltenham and Gloucester, a minimum of 10%. Other lenders, such as Alliance & Leicester and Britannia will not offer a mortgage to any first time buyer who cannot provide a 10% deposit. The Dunfermline Building Society, which caters for graduates and professionals in Scotland, is now the only lender on the market to offer mortgages over 100%. Currently there are also only 16 lenders offering 100% mortgages, although whether these will stay on the market or not in the future is unknown.

In addition to this, banks have also tightened up their lending, with stricter criteria for the potential borrower making it harder for consumers to take out a personal loan. These changes have serious implications for the first time buyers who are just setting foot on the property ladder, as well as those who are looking for a new deal when their fixed rate mortgages come to an end this year. Those wishing to remortgage will also have a tougher time, as lenders across the board are becoming more and more discerning.

Nationwide, the UK's biggest building society, recently revealed that housing prices have been falling for four months in a row now; data that reinforces the results of other surveys which all point to a slowdown in the housing market. They put the annual rate of house price inflation at just 2.7% for February, the lowest rate since November 2005 and down 1.5% from January.

Meanwhile, the UK's biggest mortgage lender, Halifax, has already predicted that 2008's housing market would be "flat". Research across the board suggests similar trends, showing the housing market has been declining since last summer. The Royal Institution of Chartered Surveyors has backed this evidence up, saying it expected the downward trend to continue over the next few months.

In some respects, the recent trends in house prices are good news for first-time buyers because for the first time in a decade, prices won’t be shooting up like they have been. Finding a mortgage for your property could very well be a problem though because of the fallout from the credit crunch. Chief economist at the Royal Institution of Chartered Surveyors, Simon Rubinsohn, said: "Crucially with lenders scaling back loan-to-value ratios and generally favouring existing homeowners in terms of lending rates, first-time buyers are continuing to struggle to get a foothold in the property market."

Put into monetary terms, if a first time buyer is required to put down a 10% deposit on what Nationwide recently reckoned to be the average UK house price, £179,358, they would have to provide £17,935 upfront to secure their mortgage. Whilst larger deposits give added security to the lender because the borrower is more likely to be able to pay the remaining balance back, combined with lower lending values it can be a headache for those striving for home ownership for the first time.

Graduates with large amounts of student debt, or those who find it difficult to save from their salary will find it more difficult to get a mortgage. A number of recent surveys have shown that more and more young professionals are turning to their parents for financial aid. The second annual savings and investment report by Scottish Widows revealed that 29% of those who borrow money from family members use it to buy a property.