New Abbey mortgage 'a lifeline' for first time buyers

20-Sep-2007

A new 125 per cent loan-to-value mortgage launched by Abbey today has been labelled a "lifeline" for first time buyers, but experts have nonetheless been at pains to point out the risks involved.

The deal shows that lenders are still looking to help buyers onto the property ladder despite the credit crunch which last week saw some lenders, including Abbey, raise rates for new borrowers by as much as 0.2 per cent on some products.

However, the latest offering, unique in that the entire 125 per cent is secured borrowing, carries with it the risk of negative equity, Moneyfacts.co.uk has said.

"The extra money these loans can provide borrowers can be a lifeline in helping borrowers get on the property ladder, providing vital cash for stamp duty, legal fees and even essential home improvements," acknowledged Moneyfacts' mortgage expert Julia Harris.

"But borrowers should remember they are starting their mortgage effectively in negative equity, requiring over 25 per cent growth in the property market before they can see any equity in their property," Ms Harris added.

"High loan to value mortgages do have a place in the market and the fact that Abbey have followed hot on the heels of Scottish Widows is testament to the fact that providers are trying to offer greater flexibility for first time buyers," commented Helen Adams, managing director of first time buyers advice website FirstRungNow.com.

"Clearly Abbey’s mortgage is targeted at professionals expected to increase their earnings significantly in the near future but these mortgages don't come without risks to both the lender and borrower.

"After all, the first time buyer may be able to take a step onto the first rung of the property ladder but they will start out with negative equity so if he they have to sell up before property prices have increased, they would need to find extra funds – which could prove problematic.

"We would urge all aspiring first time buyers to take a very close look at their options and seek advice based on mortgages from across the whole marketplace - the lure of a 125 per cent mortgage could appear very tempting for many but in practice is only suitable for the few," Ms Adams concluded.

2008: May | Apr | Mar | Feb | Jan

2007: Dec | Nov | Oct | Sep | Aug | Jul | Jun | May | Apr | Mar | Feb | Jan

2006: Dec | Nov | Oct | Sep | Aug | Jul | Jun | May | Apr | Mar | Feb | Jan

2005: Dec | Nov | Oct | Sep | Aug | Jul | Jun | May | Apr | Mar