Deposits go up on mortgages

Mortgage lenders are beginning to ask for larger deposits from first-time buyers as the credit crunch continues to take victims. Many lenders have withdrawn deals that enabled borrowers to take out a mortgage with only a small deposit – or none at all. Experts see this as the start of a process of providers tightening their lending conditions – and other building societies and banks are expected to follow suit.

Products that lent 95% or 100% of the property values have been scrapped by the Norwich & Peterborough Building Society (N&P). Their maximum loan-to-value is now 90%. For a £200,000 property, that means the borrower has to find £20,000 for the deposit – in addition to other fees and costs, such as stamp duty (which on a £200,000 property would be £6,000). Accord Mortgages, part of Yorkshire Building Society, has also done away with 100% lending. Alliance & Leicester has stripped back its 95% lending to only a few products, and Leeds Building Society requires a 100% loan to have a guarantor.

In particular, first-time buyers will suffer at the loss of these deals, as the less a deposit is, the easier they can get on the property ladder.

The credit crunch and accusations of less than responsible lending is causing providers to re-examine their lending criteria. In addition to the cut back in products, those that offer 90% lending usually have high fees attached. Alliance & Leicester, Halifax and RBS/NatWest all have a higher lending charge for borrowing at 90% or more. They claim that it covers the increased risk associated with higher lending. The charges often amount fort more than £3,000 on a typical mortgage.

Barclays, Bradford & Bingley, Lloyds TSB, HSBC and Nationwide, by contrast, do not charge more in these circumstances.

It is best to get as large a deposit as possible when taking out a mortgage, to get a lower fee, and a better interest rate.