What a difference a year makes to mortgages

This time last year Northern Rock was just another bank and the words ‘credit crunch’ had no significance. One year on and the mortgage world is a completely different place.

Julia Harris, mortgage analyst at Moneyfacts.co.uk, comments:

Maximum loan to values

“The dust has finally settled on the surge of lenders reducing loan to values. Borrowers with a deposit of less than 10% have got a lot less choice of products than a few months ago.

“In fact research from moneyfacts.co.uk shows that over the past year almost a third of lenders have reduced the maximum LTV they are prepared to offer.

“Whereas a year ago mortgages at 95% LTV were the most competitive, lenders are taking a much more cautious attitude to risk; now you are most likely to find better deals with a larger deposit, say at 75% LTV.

“In reducing LTVs, mortgage lenders are making first time buyers look at getting a mortgage in a different light. Before, a prospective first time buyer would be mainly concerned with how much money they could borrow on their income. Now it will be where the deposit is going to come from, for those without help from parents it is an almost impossible situation.

100% mortgages

“Not only is there a limited choice out there for borrowers without a deposit but rates on the few products that remain are continuing to rise. This week Abbey increased its 100% LTV variable tracker to 8.04% - with the average now at 6.56%. As shown in the table below the true cost of a mortgage at 100% loan to value has increased by almost £130 over two years.

Self certification

“Unsurprisingly the choice of products for those who wish to self-certify is also dwindling. Like the full status 100% loan to value market, lenders are a lot more reluctant to lend at 90% on self-certification products. The table once again shows a massive increase in true cost over two years of £1,245.

Trackers for term

“In such uncertain times one option for borrowers coming off fixed rate deals is to go for a penalty free tracker for term. These deals have not escaped the LTV tightening and margins are still being increased. Despite the last two cuts in the Bank of England base rate and it now being equal to what it was this time last year, the true cost of these deals has also increased.”