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End Of The Road for 125% Mortgage |
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It’s time to wave goodbye to the so-called 125% mortgage, with the last remaining lender now dropping it from their services. Birmingham Midshires was the final company to pull the controversial deal following its withdrawal by five other lenders, citing ‘market factors’ as the reason behind their decision.
These ‘mortgage and loan’ deals have been the subject of much criticism in the UK because of the way they promote the idea of borrowing more money than your home is actually worth, which involves taking on hefty levels of debt.
Another four lenders have dropped similar deals enabling first time buyers to get on the property ladder without a deposit. They were also condemned for their part in encouraging people to amass even more debt. Firstly, Alliance and Leicester removed its PlusMortgage, which offered a mortgage of up to 95% in conjunction with an unsecured loan, then followed Coventry Building Society’s decision to discontinue its MOREgage product and Abbey’s announcement that it is to halt its pilot scheme for 125%. Godiva Mortgages has also withdrawn a similar product.
Deals of this nature have been taken out by some 20,000 people each year and these latest changes will affect first-time buyers as well as those wanting to spend a considerable amount of money on home improvements, as well as those who need to remortgage and are facing higher repayments in the absence of competitive deals.
125% mortgages proved especially popular with those who have little or no deposit like Debbie Watson, a 28-year-old business studies teacher from Coventry, who said "Myself and my partner bought a property last year and we could never have done it without this available. Our mortgage repayments are more than manageable, the alternative would not have been. If we had to rent property, pay bills and try to save for a 5% deposit, we would be waiting for years to be able to get some stability in our lives and by that time our 5% would need to be significantly higher with inflation."
Potential buyers could now be prevented from getting on the first rung of the property ladder and parents could also come under more pressure to help their children finance the purchase of their first home. Just two contenders now remain in the 100%-plus mortgage market, Scottish Widows and Dunfermline Building Society, as Bradford & Bingley and Mortgage Express have now pulled their deals.
The recent credit crunch has sparked the move by these lenders to cut back significantly on deals in recent months. Denise Harvey, Mortgage Analyst at Moneyfacts.co.uk stated: "It seems no one is prepared to stand out from the crowd in the current environment and accept the additional risk a 125% mortgage poses."
"For first-time buyers there are limited options, with fewer providers now offering 100% mortgages," said Mrs Harvey. "There are also shared ownership schemes and open market home buy schemes. We may also see an increase in the number of guaranteed mortgages."
However, there is another way. If you are buy a property Below Market Value it can be possible to get a great deal and even cash back on completion. See our latest Free Report for more details. |
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