Borrowers on 125% home loan deals face big jump in repayments

Wednesday, February 20, 2008

Thousands of borrowers on 125 per cent mortgage deals will be forced to pay hundreds of pounds more in monthly repayment bills after most of the lenders offering these loans withdrew from the market yesterday.

The fallout from the credit crunch and stalling house prices have forced four leading lenders to stop offering 125 per cent mortgage deals. Another lender said that its deals were under review, which could leave Northern Rock as the only lender still offering this type of loan.

These 125 per cent deals were popular with borrowers, especially first-time buyers, when house prices were rising. The mortgages offer up to 95 per cent of the value of a home as a traditional mortgage, plus another 30 per cent as an unsecured personal loan, capped at £25,000 or £30,000.

Yet there are fears that some home-owners will be unable to find a similar offering when their current deal ends, leaving them facing much higher repayments. A borrower coming to the end of a fixed-term deal will be forced to renegotiate the “mortgage” portion of the loan with their current lender or a rival. The best-buy two-year fix for a 95 per cent mortgage is about 5 per cent, but borrowers with 125 per cent deals may be prevented from obtaining such a competitive deal by the fact that they also have a large unsecured loan.

Source

http://business.timesonline.co.uk/tol/business/
money/property_and_mortgages/article3399747.ece