Mortgage ranges still shrinking

Most new borrowers must now put down large deposits

The number of mortgage deals continues to shrink as lenders ration their home loans in favour of people who can put down larger deposits.

According to Moneyfacts, the number of deals on offer has shrunk by 65% in the past year and by a quarter since the start of November.

More than half the available home loans now require a deposit of 25% or more.

And there are now just 15 deals available to those borrowers with a once-normal 5% deposit.

"The vast majority of products lost in the last month are as a result of the loss of so many base-rate tracker mortgages," said Michelle Slade of Moneyfacts.

"A month ago there were 249 available, today there are just 45.

"With base rate falling to such low level, many lenders are choosing to severely restrict the number of trackers they offer or not offer them at all," she added.

Restricted

The international credit crisis has shrunk quickly the ability of banks and building societies to lend money to home buyers.

MORTGAGE DEPOSITS NEEDED: NOVEMBER 07 VS. DECEMBER 08

0% deposit - down from 257 to 10

5% - down from 1,126 to 15

10% - down from 1,152 to 151

15% - up from 198 to 209

20% - down from 216 to 171

25% - down from 449 to 408

40% - up from 21 to 249

UK mortgage market in graphics

Just over a year ago, at the start of November 2007, there were 3,419 different mortgages available at deposit levels of 0%, 5%, 10%, 15%, 20%, 25% and 40%

There were still 257 100% deals that did not require a deposit at all and most of the rest were available to borrowers who needed to put down only a 5% or 10% deposit.

Now there are just 1,213 deals on offer, and more than 650 are reserved for people who must raise a down payment of 25% or 40%.

The number of 10% deposit deals has increased recently though, to 151, as lenders revise their mortgage ranges.

And ten are still available with no deposit at all, but Michelle Slade said these were highly restricted.

"The 0% deposit products are from Northern Bank, who only lend in Northern Ireland and Tipton & Coseley BS, who only lend in the Midlands and you need a guarantor to get their mortgages," she pointed out.

Lower rates

To stave off the effects of the impending recession and cut borrowing costs for mortgages holders the Bank of England has in the past few months slashed its bank rate from 5% to just 2%.

The Bank of England can cut its base rate but it is not stopping lenders from increasing the deposits they require

Aaron Strutt, Chase De Vere

This has helped push down the interest charges on both existing and new mortgage deals.

But with funds now limited, banks are still rationing their loans severely, mindful of the fact that house prices have fallen by about 14% in the past year and are widely expected to keep on dropping in 2009.

Aaron Strutt of mortgage brokers Chase De Vere said that if the government wanted mortgage lending to revive, it would have to put pressure on lenders to accept smaller deposits.

"The Bank of England can cut its base rate but it is not stopping lenders from increasing the deposits they require," he said.

"The majority of big lenders will not lend above 80% of a property's value"

The downturn in mortgage lending has been so dramatic that some experts predict that if the trend continues hardly any new loans may be granted next year.

This could lead to the novel situation of new lending being outstripped by mortgage redemptions as people pay off their loans.