Woolwich now demands 10% deposit

Mortgage deals with 5% deposits are now much harder to find

The Woolwich, the mortgage lending arm of Barclays Bank, has become the latest big lender to demand at least a 10% deposit from all new borrowers.

Its decision is the latest reflection of the credit crunch which has forced lenders to restrict their lending.

Last week, the Nationwide imposed a minimum 10% deposit on all but two of its mortgage deals.

Others with similar policies are the Co-op bank, Cheltenham & Gloucester, Alliance & Leicester and the Britannia.

"Set against the background of a continuously changing market, we feel it is prudent from a customer perspective to limit the maximum loan to value (LTV) available to 90%," the Woolwich said.

"As a result, we will be withdrawing all products that are currently available for loans above 90% with effect from Thursday, 8 May," it advised.

The Woolwich's decision affects the three deals it still offered with a 5% deposit - a lifetime tracker, a five-year fixed mortgage and loans on its standard variable rate.

Disappearing

The credit crunch, which provoked the nationalisation of the Northern Rock bank, has led to a rapid shrinking of the mortgage market as lenders find it harder to raise funds by borrowing from other financial institutions.

Compared to a few weeks ago, there are very few around Aaron Strutt, Chase de Vere

Mortgages worth 125% of a property's value disappeared earlier this year, rapidly followed by 100% mortgages.

Now deals which require a 5% deposit are becoming harder to find and deposits of 10%, or even 15%, may soon become standard, according to some experts.

"There are some 5% deals still available, such as with the Post Office, Skipton building society, RBS and HSBC," said Aaron Strutt of mortgage brokers Chase de Vere.

"But compared to a few weeks ago, there are very few around," he said.

According to financial information service Moneyfacts, there are currently 204 mortgages available from 51 lenders who require a 5% deposit, compared with 997 deals on offer a year ago.

Last Friday, another leading mortgage bank, the Bradford & Bingley, restricted its lending to new borrowers.

It dropped its popular two-year fixed rate deal, which required a 5% deposit, and replaced it with two deals lasting for either three years or 10 years.

Although they still ask borrowers to put down just 5% of the property's value, the interest rates now being charged are significantly higher than before, at either 6.49% or 6.69% respectively, compared with 5.59% on its previous two-year deal.