First-time buyers face tougher mortgage restrictions

Published 21st Jun 2010

The introduction of mortgage caps, to head off another financial crisis, is said to be on the Bank of England's agenda



Mortgage cap Bank of England First-time buyers could face another hurdle in the shape of a mortgage cap. Photograph: Getty Images

Speculation this week that the Bank of England may introduce mortgage caps restricting how much people could borrow prompted a flurry of debate, and again put the spotlight on the plight of first-time buyers.

Some commentators pointed to new figures showing how few mortgages are available to those with a small deposit as evidence of lenders being more sensible. There are less than 20 mortgage deals allowing people to borrow 95% of their property's value (LTV), compared with some 1,000 three years ago.

George Osborne, the chancellor, this week confirmed the Bank is to be handed sweeping powers to curb City excesses and prevent another financial crisis. It was widely reported this would include the power to restrict lending, potentially allowing the Bank to block consumers from borrowing too much. This could, it was suggested, include restrictions on LTV ratios, so that people might be prevented from taking out a home loan for more than, say, 75% of the property's value.

But any move to introduce a cap on lending in the mortgage market would be "disastrous" for the millions of borrowers who don't have a 25% deposit, according to Hannah-Mercedes Skenfield at Moneysupermarket.com.

Based on mortgage searches made via the website, up to 40% of people looking for a home loan have a deposit of less than 25%. Meanwhile, it is estimated around 2.5m outstanding mortgages – around a quarter of the total – are for more than 75% of the property's value.

"Our concern is that a blanket LTV restriction will freeze the housing market for years. Although LTV is a factor when making lending decisions, it is more important to factor in affordability and judge each application on its own merits," says Skenfield. "For many young people looking to get a foot on the first rung of the housing ladder, a deposit of perhaps £25,000 is unthinkable, especially for those saddled with student debt, yet in many cases their mortgage repayments would be similar to the rent they are paying."

Moneyfacts issued figures which it said clearly showed lenders behaving much more prudently. It says there are 19 mortgage deals allowing people to borrow up to 95%, compared with six a year ago and 970 in June 2007. Many of those 19 have major strings attached.

A buyer with a 10% deposit has a lot more choice; there are now 174 products open to them, compared with 77 a year ago and 763 three years ago. Moneyfacts found eight 100% mortgage deals, but these are only available in Northern Ireland. There is nothing available above 100%.

Source: ' Guardian '

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