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February 21, 2008

High Street lenders scrap the 100% mortgage

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by Kay Mitchell

High Street lenders scrap the 100% mortgage

A number of high-street lenders have scrapped their 100% plus mortgage range meaning first-time-buyers will now have to find a deposit when buying their first home.

Previously, these types of mortgages have been criticised for letting people take on more debt.

The effects of the global credit squeeze, together with a stagnant housing market, has seen both Alliance and Leicester and Abbey withdraw 125% deals.

Since the property price boom, 100% plus mortgages have become extremely popular, particularly as first-time buyers have struggled to get a deposit together so have opted for these mortgages to pay for stamp duty and legal fees.

The mortgages offer up to 95% of the value of a home as a standard mortgage, as well as a further 30% on top as an unsecured personal loan, capped at either £25,000 or £30,000.

On the plus side, these hefty mortgages have meant that many borrowers have been able to get onto the property ladder but the negative is that they are instantly plunged into negative equity owing more to their lender than their homes are worth.

Louise Cuming, Head of Mortgages at moneysupermarket.com, said with so many prominent lenders pulling out of the 100% mortgage market this week, consumer confidence is going to be knocked again. At a time when consumer confidence is so low, it is disappointing that lenders are adding to the panic, added Ms Cuming.

However, in spite of the withdrawal of 100% mortgages, the Council of Mortgage Lenders (CML) have reported that gross mortgage lending rose to an estimated £26.5 billion in January compared to the £23.9 billion recorded in December.


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