125% secured Loans and Mortgages?
05/03/2008
Are the days of 125% secured loans and mortgages over? Over the past few years a number of loan and mortgage lenders have offered borrowers up to 125% of the property value. This was due to two main factors, the first being the price of property was increasing every year, and the cost of borrowing was at a low rate is the second factor. With the recent cooling in the property price market and credit crunch, the lenders have tightening their lending criteria to reduce market risk to bad debt on their books. Thus pulling these higher risk products from the market as they are not fully secured on the value of the property.
Lenders who where offering 125% mortgage products have now pulled them from the market, and once the deal rate (tie-in period) has finished they will go onto the lenders higher standard variable interest rate. If you have this type of mortgage you may still be able to remortgage to another lender, this is providing that you will fit the affordability of the criteria for the new mortgage. Please see the example below to get an idea how this works:
Property Value: £100,000 125% mortgage amount: £125,000 With all the lenders offering these mortgages the amount actually secured on the property will only be about 90% of the value of the property, in this example case £90,000 - This is the amount that can be refinanced to a better deal, you current lender might offer you a better deal on this 90%, so it is always worth asking the question if they have not offered.
The only way that these 125% deals will come back to the market is when the property prices start to increase at a reasonable rate and the cost of borrowing is low.
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