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The credit crunch is seriously affecting buyer access to funds but the CML and the Royal Institute of Chartered Surveyors (RICS) have jointly warned of a serious gulf in the price expectations of buyers and sellers, which is leading to the collapse of several housing transactions. The CML forecast that house purchase lending figures will get worse as the number of transactions decline. Total mortgage advance for March totalled £24.1 billion, which was up 5% from February but that was only one quarter of the 20% hike that is normally seen at that time of the year.
However, the CML did report a boost in remortgage activity. As borrowers come off their two and three-year fixed rate mortgages, lenders handed out £33.3 billion, accounting for 44% of gross lending at its highest level for three years. Loan to value ratios have remained low with first-time buyers cited as borrowing an average of 89% of property value in March.
At one time, back in the day of sensible house prices, you could borrow 3.5 times your salary. Then things went a bit silly; property prices went through the roof and the lenders were forced to move the goalposts to keep the market moving. Buyers were now being loaned up to five times their wages, with some lenders even pushing that boundary with their "affordability models" which took into account a borrowers existing financial commitments before deciding what size mortgage payment they could afford. This was invariably a more generous system than simply using income multiples.
When the credit crunch happened the mortgage companies tightened their belts. They could no longer raise the money for a lot of their products and they had already had burnt fingers from some of the more risky loans. The 100% mortgage for first-time buyers became a thing of the past and lenders started asking for a deposit of at least 5%. That is now the absolute minimum that is being asked for; invariably first-time borrowers will find that this figure will be around 10%.
In addition to asking for a healthy deposit, mortgage companies have also raised the fees for their products that are still available. Reasonable rates, such as the "mortgage matcher" from HSBC are being cancelled out by high fees. This product is aimed at the many borrowers coming off their two and three-year fixed rates this year and promises to match the fixed rate that the borrower was previously on. Problem being, that the lower the previous interest rate, the higher the set-up fee. In fact the fee for this product can rise up to £5,000 effectively negating any interest rate savings over the first few years.
In summary, mortgage lenders are using affordability models more and more when deciding how much to lend buyers. However, these models are not standardized and vary greatly from one lender to another. The bottom line is that if you are a first time buyer you will need a substantial deposit (5-10%) and have healthy finances. If you're looking to remortgage, you'll need a good loan to value ratio (around 80%) and will also need healthy finances.
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