100% mortgage take-up doubles

31-Oct-2007

The number of borrowers taking out a mortgage with a loan-to-value of at least 100 per cent has doubled in the first nine months of the year, the Mortgage Advice Bureau (MAB) has said.

First time buyers looking to get onto the property ladder are increasingly abandoning the practice of saving for a deposit in favour of riskier LTV deals, the study suggests.

The doubling of the numbers opting for such deals in comparison with levels seen in 2006 has been accompanied by an increase in the average size of a first time buyer mortgage, the firm added.

The average deal for new buyers in September 2006 was for a £108,917 mortgage at a rate of 4.89 per cent, but this has risen to £116,604 at a rate of 5.79 per cent this year, equivalent to almost £120 extra each month in interest.

"These products often carry an interest rate of one per cent more than other mortgages," said MAB head of lending Brian Murphy.

"With a 100 per cent LTV mortgage the buyer has no equity to fall back on should the price of the property achieved in a forced sale scenario fall below the price paid for it originally.

"In this scenario the buyer will remain responsible for paying the lender shortfall," Mr Murphy warned.

This week has also seen mortgage firm mform.co.uk warn that as many as 33,000 buyers who have taken out such mortgages in the past 20 months are running the risk of negative equity.


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