With falling house prices and mortgage lenders concerned about their exposure to risk the most competitive mortgage rates are currently being offered to applicants with low loan to value mortgages.
Gone are the days of 125% mortgages and free and easy lending criteria with house prices climbing month on month.
Now to qualify for the best mortgage rates available customers are required to meet lower risk criteria.
It makes bad business sense for a mortgage lender to offer mortgages in excess of the value of a home if the property is likely to be worth less in just a few months.
That would put the mortgage holder into a negative equity situation and expose the lender to more risk because if they have to repossess the property they would certainly lose money.
Lenders are therefore playing it nice and safe by offering the best market rates to people with low loan to value mortgages.
Borrowers with more than 40% equity (that’s 60% loan-to-value) will find themselves welcomed by any lender with virtually open arms (provided there is no adverse credit history).
Even borrowers with 25% Equity (75% loan-to-value) are able to find favourable rates but with falling house prices there are many people who through no fault of their own now have less equity than before.
Borrowers with less than 25% equity are now finding it harder to secure a mortgage with a competitive rate just because the banks have changed the way they lend.
Because of falling house prices there are more borrowers now who are unable to secure any kind of mortgage offer. Some lenders have 90% loan to value offers available but clients need to be ‘squeaky clean’ and even then rates are above 6.5%.
Any borrower with less than 10% equity will be struggling to find any deals available and will find themselves in the same situation as anyone with negative equity.
One saving grace is the Bank of England base rate cuts which many lenders have passed on to their customers.