Only one lender in the UK is now providing loans that are higher than the value of homes. Nearly all lenders of 125 per cent loans are no longer accepting them. This includes key lenders such as Alliance and Leicester, Godiva Mortgages, Abbey, and Coventry BS. Just announced too was the Northern Rock lender who will no longer be offering these high debt loans.
While this is significant news to borrowers, especially first time borrowers looking to get into properties, it is not the worst that the housing market is seeing. 75 per cent of buy to let product has recently been culled. Additionally, it is estimated that some 40 per cent of all mortgages offered have been removed, with a tightening of the lending qualifications borrowers must meet.
As reported in Reuters, Director at Savills Private Finance, Melanie Bien, had this to say, "When there's double digit house price growth, it doesn't matter so much if you take on a relatively high LTV (loan to value) because by the time you come to re-mortgage, your LTV will have effectively fallen because you will have more equity in your home."
She then continued, "But if you borrow the full amount or more than the value of your home and house prices don't rise, or, even worse, fall, you could have even more negative equity when you come to re-mortgage. And if fewer lenders will look at this sort of business, you could be in trouble."
