Page last updated at 16:06 GMT, Wednesday, 4 February 2009

Mortgage hurdles become tougher

For Sale signs
Interest rates may be much lower but mortgages are harder to obtain

The conditions attached to mortgages have become more severe in the past month, as banks have continued to rein in their lending to new borrowers.

Figures from the financial information service Moneyfacts show that 64% of all mortgages now require a deposit of at least 25% of the value of the property.

A month ago, 60% of mortgage deals required such a large down payment.

Moneyfacts said the total number of deals on offer had now shrunk by 89% since the start of the credit crunch.

Lenders are expected by the authorities to restrict their lending even more in the coming months, although Bank of England figures revealed recently that mortgage lending in fact picked up slightly in December.

Reduced choice

There are now just 10 deals on offer requiring no down payment at all, and from just two lenders.

"They are Northern Bank, which lends in Northern Ireland only, and Tipton & Coseley building society, which only lends in the Midlands and you must have a guarantor," said Michelle Slade of Moneyfacts.

"The number of people these deals are open to is very limited and the rates are above 7%.

"There are only three fixed 95% deals left on the market, which are available direct from Abbey, Yorkshire Bank and Clydesdale Bank, however with rates at over 7% borrowers would really be paying a premium for having such a small deposit," she added.

At the other end of the scale, a quarter of the remaining mortgages still on offer to the public need a 40% deposit.

A year ago, even when the credit crunch was already well under way, more than 1,200 deals were still available to borrowers who needed to put down no more than 5%.

Sales slump

The reluctance of lenders to grant mortgages to people whom they once thought of as sound borrowers led to a dramatic shrinkage in the UK property market in 2008.

0% deposit - down from 182 to 10
5% - down from 1,023 to 3
10% - down from 1,197 to 120
15% - down from 245 to 220
20% - down from 243 to 114
25% - down from 669 to 521
40% - up from 24 to 326
Source: Moneyfacts

House prices fell by about 15%, and the volume of sales slumped by 43% according to HM Revenue & Customs.

There are some tentative signs that mortgage lending and house sales, though not prices, may have touched the bottom.

For the past six months surveyors have reported a gentle pick up in enquiries from would-be home buyers.

And the number of mortgages approved by lenders, but not yet spent - traditionally a good indicator of future trends - picked up in December, though only from 27,000 the previous month to 31,000.

Actual sales that month rose too, from 52,000 to 61,000.

But they were still 42% down on the same month the year before.

The widespread expectation is that prices will continue falling in the next 12 months, possibly by as much as another 15% to 20%.

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