The Financial Blog

I’ve always thought the 100 per cent mortgage was a bad idea in the first place. It was something my parents warned me against taking out when I bought my first house with my girlfriend, and if your parents warn you to steer clear of something when it comes to finances you’d be advised to listen, because they probably know what they’re talking about.

And so the mortgages which let you borrow more than your property is worth are finally being scrapped by some of the biggest lenders in the UK.

Alliance and Leicester and Abbey have both pulled their 125 per cent loan to value (LTV) deals. The stats go something like this; before Christmas a third of UK lenders offered 100 per cent mortgages, some offered more than 100 percent as in the case of Alliance and Leicester and Abbey with their 125 per cent mortgages. Right now only one lender in ten does.

The general 100 per cent plus mortgages are usually taken out by divorcees or first time buyers desperate to get on the property ladder. The additional funds raised by over borrowing are used to cover legal costs, stamp duty and so on. This means people are instantly facing an uphill struggle because they start off their home buying lives in negative equity, borrowing more than their property is worth.

This entry was posted on Wednesday, February 20th, 2008 at 4:50 pm and is filed under Mortgages. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.