Lenders are continuing to request bigger deposits as they ration home loans to customers.

 

In the past month the amount of new mortgage deals requiring at least a 25% deposit has risen from 54% to 60%. Furthermore, 25% of all deals on offer require a 40% deposit according to the information service Moneyfacts.

 

The Bank of England revealed last week that building societies and banks expect to rein in their lending even more in the coming months.

 

A spokesperson for Moneyfacts said that ‘The number of deals available for those with a deposit of 25% or more continues to increase as the lenders are looking to cherry pick the best customers. Worries over falling house prices and the potential of customers getting into negative equity has caused the number of deals for customer with just a 10% deposit or less to fall to an all time low’.

 

There are now just 21 mortgages available if you have a deposit of 5% or less, compared to more than 1,200 on offer at the beginning of February 2008.

 

The global credit crunch and subsequent shortage of mortgage funds has produced a similar collapse in the number of mortgages where you are asked to provide the once traditional 10% deposit. From nearly 1,200 on offer at the beginning of February 2008 to less than 150 now!

 

On the other hand, the number of deals requesting at least a 40% deposit has risen from just 24 to 341.

 

There is also a considerable difference in interest rate payable depending upon the size of your deposit. Somebody with a small deposit will end up paying a much bigger premium on the interest rate and are likely not to be able to obtain a more attractive tracker deal.

 

During 2008 the UK property market shrank massively as the lack of mortgage funds closed the door on the flow of buyers and subsequently pushed down house sales and prices.

 

According to a Halifax survey, sales volumes are currently 60% lower than a year ago and prices fell by 16% during the course of 2008. Coupled with this, according to figures from the Bank of England, the number of new mortgages approved in November 2008 was 67% lower than a year ago. They suggest that sales are expected to fall further in the forthcoming months.

 

Commentators and experts are united in their view that prices will also keep falling for the time being, possibly even into 2010.

 

As yet there is no evidence to suggest that the government’s attempts to get the banking sector lending money again is happening.

 

(Information Source – BBC Business News Website – 5-1-09)