Government plans to restrict mortgage lending in this week’s round of budget changes could make first time buyer mortgages more difficult to obtain.
Experts believe that the Bank of England may be given new powers to cap loan-to-value offers from lenders. This could mean higher deposits needed for first time buyer mortgages, with possible restrictions on offering mortgages of over 90% of property value.
Reductions in the availability of high loan-to-value first time buyers mortgages have been a trend for some time. There are currently 174 first time buyers mortgage deals offering 90% loan-to-value, compared with 763 such first time buyers mortgages in 2007.
The Council of Mortgage Lenders (CML) has already warned that building a mortgage cap into the budget changes would hinder growth in the market, and not only for those seeking a first time buyers mortgage.
“We need to remember that what is currently bothering most people about the mortgage market isn’t high-risk lending, but the fact that lending is so constrained into low-risk borrowers that it may be making it more difficult for the economy to grow,” said CML director general Michael Coogan.
The effects of a mortgage cap in the budget changes could be equally serious for existing homeowners. The budget changes could leave existing borrowers trapped in expensive mortgage deals which they were unable to refinance. Consequently their flexibility to switch mortgage lender would be impaired, leaving them with no choice other than to accept the pricing policies of their existing lender.
The budget changes and government cuts will be announced by the Chancellor in the budget tomorrow, 22nd June.
