News

Societies renew faith in 90% mortgages The Financial Times July 09

Building societies are showing a renewed appetite to offer loans fro 90 per cent of a property's value of competition begins to creep back into the market for mortgage borrowers with samll deposits.

The number of mortgages available to borrowers with a 10-per-cent deposit has risen by 21 per cent since the start of June, according to Moneyfacts.co.uk, the product comparison website.

Societies including Britannia, Cambridge, Earl Shilton, Saffron and Leek United have launched high loan-to-value mortgages in the past month, helping to improve the purchasing pwer of first-time buyers.

But there is no sign of lenders venturing back into the riskier 100 per cent mortgage market, which rapidly dried up when house prices started to fall. Banks are concerned that without an enquity cushion there is still a considerable risk of borrowers falling into negative equity.

"Nobody is offering mortgages at 100 per cent, and while the number of 90 per cent deals are increasing this is from a very limited number," said Ray Boulger at John Charcol, the mortgage broker.

The mortgage rates on 90 per cent loan-to-value deals also remain high, with some lenders charging more than 7 per cent.

Cash-poor buyers are however being offered help from other, less conventional sources.

Places for People, the property developer, is providing its own mortgages to borrowers who do not have funded by the company itself, are available for homes in Milton Keynes. The properties are being sold Knight Frank and range from £145,000 flats to three-bedroom homes costing about £400,000.

Buyers will be able to borrow up to 100 per cent of the property value on a fixed or tracker rate.

The initial two-year fixed rate is 5.99 per cent, which mortgage brokers said was good value compared with other high loan-to-value deals. When this expires borrowers revert to a more expensive tracker rate.

Miriam Morris, the development marketing director at Places for People, said the group was prepared to take the risk of lending at it was confident the property prices would increase.

The developer is also offering to buy back the properties after three years for the original price if the value has fallen below the purchase price.

Borrowers applying for a 100-per-cent mortgage had to pass stringent credit checks, Mr Morris said.

Mortgage brokers said that if the developer had not offered its own mortgages it might have struggled to offload the properties, as buyers might not have had sufficient cash savings to meet banks' requirements.