First time buyers should not even consider seeking a mortgage without putting down a 25% deposit, says Moneysupermarket.com's mortgage expert, Louise Cuming.
Despite the Chancellor asking mortgage lenders to continue providing cheap loans to households, most are still desperate to get rid of customers and consumers are faced with few choices, she adds.
Cuming says first time buyers without a substantial deposit of at least 25% should bide their time and continue saving, as they will find it impossible to access competitive interest rates in the current market.
Lenders have become increasingly wary of lending large proportions of a property’s value, as house price falls increase the risks of negative equity.
With house prices down around 15% over the past year, any borrower who took a loan at more than 85% LTV in 2007 is likely to owe more money than their home is worth.
Cuming says existing homeowners looking to remortgage will suffer from similar problems and those with an LTV of more 75% are likely to struggle to refinance on a low rate of interest.
“Get a realistic valuation of your property, and deduct 10% from it,” she says. “If you still have a loan to value of 75% or better and you have an excellent payment record Lenders will be fighting over you.”
However, borrowers with less equity in their homes or with poor payment records may find it difficult to secure a low rate of interest, and some may be unable to remortgage at all.
Cuming says lenders are unwilling to lend to customers that are not virtually risk-free, and doubts the Government’s efforts to increase lending to households will change this.
“Lenders are quite happy to charge existing borrowers more, she says, “and would be delighted if those borrowers paid of their mortgages to go elsewhere.
“This is especially true if the borrower is more risky or is having trouble paying. If anything they'd like to shrink their mortgage books over the next few months, whilst they are struggling to find funding.”
Cuming believes a cut in base rate tomorrow is unlikely to lessen the cost of mortgage finance and claims only a significant reduction in inter-bank lending costs can help struggling homeowners.
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