David Knight, eMoneyfacts.co.uk's mortgage analyst said: “125 per cent loan to values may not be quite what they seem. Lenders have put such tight restrictions on them that only in very specific circumstances can a borrower will get the full 125 per cent loan.
“For example Abbey, Alliance and Leicester and Coventry will restrict the extra loan, secured or unsecured to a maximum of £25,000. Effectively this means that the property can only be worth a maximum of £100,000 to achieve a 125 per cent loan.
“This week Northern Rock placed further restrictions to some of its Together range products. On the lower rate deals, the unsecured loan is limited to a maximum of 30 per cent or £10,000.
"In these circumstances, the property would have to be worth a maximum of £33,000 in order for the borrower to get the full 125 per cent. A 30 per cent or £30,000 loan is still available but at a 0.20 per cent higher rate.
“At a time when the housing market is showing signs of a fall, or at the very least a slowdown, it is especially important that borrowers take full consideration of what borrowing more than the current value of their property could mean for them in the future.”
In additon to this, the personal loans market has shrunk by 10 per cent as a direct result of the financial squeeze.
Hanley Economic Building Society and Northern Rock-funded Eskimo Loans have pulled out of the loans market, joining GE Money, Leeds BS and LV= which withdrew earlier this month.
“Such a large reduction in just the last month is worrying," explained Esther James, personal finance analyst at eMoneyfacts.co.uk. "With no signs of rate rises slowing, it’s a rather unsettled market. The credit crunch is showing its strength in the personal loan market.
“Anyone considering a personal loan might be advised to act sooner rather than later. With less choice, a more cautious lending strategy and the impending decision on payment protection insurance sure to shake up the market, the 2008 loan market could look very different."
