By Q4 2005 12% of people taking out mortgages in the UK borrowed 100% LTV or more. This compares to just 8% in 2004
Brian Murphy, Lending Manager at Mortgage Advice Bureau, commented: “I feel that these levels are as much a result of increased marketing by the lenders of 100-125% products, as due to the rise in house prices. Buyers should wherever possible try to raise a deposit and only consider a 100% mortgage if absolutely necessary.
“The advantage that these products bring to first time buyers is a combination of attractive rates, greater borrowing potential for those customers who meet the criteria, the ability to make home improvements, furnish the property and meet the costs of moving without the need for a deposit. Many clients are using the flexibility of schemes like the Northern Rock Together product to consolidate existing unsecured credit at a rate not normally available on the high street and thereby improving their monthly disposable income.
“The proportion of people taking out 100%+ mortgages showed a steady increase over 2005 (from 9% in Q1) with the proportion of borrowers peaking in Q3 2005 (to 12% in Q3 & Q4) – coinciding with the fall in interest rates in August. With borrowing at such reasonable rates people clearly feel more able to afford more but must be aware of their own levels of affordability. Even if an increase in interest rates does not seem immediately imminent, circumstances can change fast and could leave those who have stretched themselves too far, in deep financial trouble.”
The largest proportion of people (20%) borrow 80-89.9% LTV, and thereby must be raising between 10-20% deposit. The data also shows that one in six people (16%) has a deposit of over 50% of the value of the property at the end of 2005. This is slightly down on 2004 figures which recorded 17% borrowing less than 50% of the value of the property.
It does appear that, despite the continued stability of interest rates, consumer confidence that this will continue is waning. In 2005 MAB’s data shows that the number of people choosing fixed rate mortgages soared while discounted and variable products plummeted in popularity. In 2005 fixed rate mortgage accounted for 75% of loans while discounts took 9%, trackers 6% and other variable rate products 9%. In 2004, the data showed 54% fixing, 32% choosing discount and 13% choosing other variable products.
Brian Murphy commented: “The shift towards fixed rate mortgages reflects customer uncertainty about the direction of interest rates following the round of increases experienced in 2004. In spite of interest rate stability in 2005 and a quarter point reduction in the bank base rate, customers have chosen the safe haven of fixing and this continues to be reflected in early activity in 2006.”
