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Last Updated: Monday, 3 March 2008, 23:45 GMT
Q&A: Mortgage squeeze tightening
Someone filling in a mortgage application form
It's getting harder for some people to get a mortgage
Recent weeks have seen some significant changes in the mortgage market, from the end of so-called 125% mortgages to stricter demands for deposits.

The credit squeeze means banks are being stricter with their lending criteria, making it harder to get a loan.

All this is likely to have an impact on first-time buyers, and those searching for a new deal as their fixed-rate comes to an end.

What is happening with house prices right now?

All the latest surveys have pointed to a slowdown in the housing market.

The UK's biggest building society Nationwide says prices have fallen for four months in a row.

It put the rate of annual rate of house price inflation at 2.7% in February, down from 4.2% in January and the lowest since November 2005.

The Halifax, the UK's biggest mortgage lender, predicted the market would be "flat" in 2008 after a decade of near record-breaking increases.

House price graph

Various surveys have charted a decline in the housing market since last summer and the Royal Institution of Chartered Surveyors (Rics) said it expected the downward trend to persist for some months.

That's bad news if I'm trying to sell, but what does it mean if I'm entering the market for the first time?

On the face of it, it is good news because prices won't be hurtling up as you look for a place to buy just like they have been in the past decade.

But first-time buyers seem to be bearing the brunt of the credit squeeze when they start to look for a mortgage.

"Crucially with lenders scaling back loan-to-value ratios and generally favouring existing homeowners in terms of lending rates, first-time buyers are continuing to struggle to get a foothold in the property market," said Rics chief economist Simon Rubinsohn.

Which options are no longer available to me?

The striking change in recent weeks was the end of the so-called 125% mortgage - once one of Northern Rock's key products.

Within a week, all six lenders offering mortgages topped up with a loan up to 125% of the value of a home have left the market.

After falling head over heels for a property, we've now been told there is no lender who will consider us
Louise Brunt, potential first-time buyer

Meanwhile the Dunfermline Building Society, which serves professionals and graduates in Scotland, has become the only lender in the 100%-plus mortgage market, and the number of deals for 100% mortgages is shrinking fast. At the last count 16 lenders still had products on the market.

But most significantly Cheltenham and Gloucester, part of Lloyds TSB, announced it would not offer mortgages to anyone unable to put down a 10% deposit.

Alliance & Leicester and Britannia already operate a similar policy of requiring a 10% deposit for first-time buyers.

If you take Nationwide's average UK house price figure of 179,358, that would be a deposit of 17,935.

Aren't lenders just making sure they don't take on risky customers?

Of course, a bigger deposit means borrowers are less likely to slip into negative equity.

But some BBC News website readers were angry when they read about the end of mortgage deals higher than the value of a property.

Louise Brent, of Portsmouth, found a home she wanted to buy with her partner, told her landlord she was moving out, but could not get a 100%-plus mortgage.

"Now we are stuck, with a tenancy that is running out in a month and no other solution," she said.

Hannah Al-Rifai, a 26-year-old solicitor, said a 107% mortgage worked perfectly for her and her boyfriend, and would do for others in their situation.

"Owing to high levels of student debt we were unable to save for a deposit. The deal we got meant that we were able to make an investment in property before we turn 30 which was an important goal for both of us," she said.

"We appreciated that it was a risk to borrow more than the value of the property, but we have been very careful."

So I suppose it is off to the bank of mum and dad for some help?

A glut of surveys suggest that adult offspring are going cap in hand to relatives for help, but Katie Tucker, of mortgage brokers John Charcol, said it would also lead to a return to the philosophy of saving of their parents' generation.

"This year, the UK will see a return to the culture of saving for a deposit. More young people will stay at home for longer, and those paying rent will have a difficult time saving as well," she said.

For Sale signs
Annual house price inflation has been slowing in recent months

Those who got on the property market just a few years ago on short-term fixed rate deals will also have to shop around hard to find a deal to match or see their repayments shoot up.

Last week, in an interview with the BBC, the Financial Services Authority's chief executive Hector Sants suggested banks would have to change the way they do business.

This could mean permanently pushing up the cost of loans and mortgages and making cheap credit harder to come by.

Anything else I need to consider?

The changing shape of home ownership is a factor too, according to the Council of Mortgage Lenders (CML).

It suggests that a fifth of buyers entering the market are actually so-called returners, who at some point in the past have been homeowners.

The number of second homes in England has risen by 30% in the last decade, the CML said.

Around two million people in couples still maintain their own separate properties which, depending on what they do with them, would affect supply.

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