Homebuyers told to pay 25% deposit or penal interest rate

PasturesNew

http://www.guardian.co.uk/money/2008/feb/25/houseprices.mortgages

Nationwide will tell homebuyers today that unless they have a deposit of 25% or more of the value of a property they will face higher mortgage rates, in the latest illustration of the clampdown on lending caused by the credit crunch.
The move will be a blow for first-time buyers struggling to save for a deposit and comes amid the virtual disappearance of high loan-to-value mortgages. The credit crunch is already slowing the housing market. The Hometrack survey out today shows that prices fell for the fifth month in a row during February.
Until today, those with a deposit of 10% or more were able to get Nationwide's best mortgage deals. This week the cost of borrowing for loans of between 75% and 95% of the value of a home will rise by 0.2 of a percentage point, wiping out the impact of the last cut in the Bank of England's base rate. The rise only affects new borrowers. A spokeswoman said: "Our costs of funding are higher and like all lenders we have to adapt to changes in the marketplace."
Nationwide's caution comes at a time when mortgage experts are trying to predict the winners from the credit crunch and concluding that Abbey could come out on top because of the funding available to its Spanish parent, Santander, through the European Central Bank.
Ray Boulger, of brokers John Charcol, said Abbey already has the best-buy two-year fixed rate deals, particularly for borrowers seeking larger mortgages. "The ECB is accepting mortgages as collateral, while the Bank of England is being pretty unhelpful. So anyone with a parent group that is based in the ECB area, such as Abbey or Bank of Ireland, is able to tap into funds that aren't so easily available to the pure UK retail banks."
Other major lenders are expected to cite the credit crunch as they raise margins after years of cut-throat competition. Melanie Bien, of Savills Private Finance, said: "We're not seeing anybody going after market share. Instead they are increasing margins. Six months ago you could find tracker rates at just below the Bank of England base rate, but now they are at least 0.5% above base rate."
At London & Country Mortgages, one of the biggest direct brokerages, David Hollingworth expects to see a "managing down" of capacity across the marketplace in 2008. "The lenders are no longer scrambling over each other to launch the best deals," he said.
Smaller building societies which have always financed their mortgages from deposits have emerged almost unscathed by the credit crunch. One small lender that is proving to be a winner from Northern Rock's demise is its next-door-neighbour, the Newcastle Building Society. It benefited from Rock's depositors looking for a new home for their savings. Now mortgage brokers report that it has some of the best deals in the marketplace.

Generali

This seems to be part of a trend towards tightening credit conditions towards borrowers.

It's a bit hyperbolic - 0.2% is hardly penal. It's less than £20 a month on a £100,000 mortgage!

Gorgeous_George

Yes, but it's a good headline.

With a nation obsessed by property value, anything that impacts the property market will sell papers. Any story that sells papers will be told even if the news is minimal.

It has always been the case that lower LTVs = lower interest rates and upfront costs.

GG

carolt

Clearly lenders are covering their backs for big price falls ahead...

merlinthehappypig

carolt wrote: »

Clearly lenders are covering their backs for big price falls ahead...

We will get our survey back this week on the house we might be buying. It's already come down 15% and it will be interesting to se what the valuation comes out at. I'm expecting it to be less than the agreed price, even after the price drop because lenders are going to want to cover their backs.

Depends on whether they take the low LTV into account or accurately value the house.

Generali

carolt wrote: »

Clearly lenders are covering their backs for big price falls ahead...

I suspect that has something to do with it. I also think that the bigger part of the reason is that less money can be lent now so you don't need to lend to the least profitable borrowers.

hgllgh

Generali wrote: »

I suspect that has something to do with it. I also think that the bigger part of the reason is that less money can be lent now so you don't need to lend to the least profitable borrowers.

It's a negative feedback cycle ... tighter credit -> lower prices -> even tighter credit -> even lower prices

the issues look like they are compounding each other don't they.
And this is Nationwide, the UK's biggest lender!
Imagine any lender saying something like this last year? Would never have happened would it.... which indicates just how bad the credit crunch really is?

pinkshoes

Asking buyers to put down a 25% deposit is a positive step, as it's about time we turned this nation of people who think spending and debt is the norm, and get to them to actually save for the things they want in life.

On the other hand, it'll be harsh for FTBs who have been waiting for the market to drop so they can actually afford something, and now have to go back to the drawing board for more cash to pay the deposit.

The 0.2% penalty is hardly harsh...

Guy_Montag

pinkshoes wrote: »

Asking buyers to put down a 25% deposit is a positive step, as it's about time we turned this nation of people who think spending and debt is the norm, and get to them to actually save for the things they want in life.

On the other hand, it'll be harsh for FTBs who have been waiting for the market to drop so they can actually afford something, and now have to go back to the drawing board for more cash to pay the deposit.

The 0.2% penalty is hardly harsh...

With a bit of luck this will lead to a feedback cycle so that the 25% gets easier to save as the property price drops.;)