It is the eleventh hour for the 100 per cent mortgage as Abbey, the UK's third biggest provider and the last to offer 100 per cent deals, announces that it will pull them from its product range this evening.
In a move that is reminiscent of many similar ones by other mortgage
providers in recent weeks, Abbey has announced what is said to the most brutal blow from the credit crunch thus far – it will scrap its 100 per cent mortgage from tonight until further notice.
The 100 per cent mortgage has been in existence for 20 years, enabling those who could not afford to save a deposit to still buy their own home.
As 2007 drew to a close, buyers could borrow 100 per cent or more of the value of their home from 33 per cent of mortgage lenders, and more than 70 per cent of mortgage deals have disappeared since the credit crisis broke last summer.
Despite a fall in the interbank lending rates yesterday, they still remain at historically high levels; there is hope that this will put pressure on the Bank of England to cut the base rate on Thursday from 5.25 to 5 per cent.
Amidst a tsunami of withdrawals, lenders are trying to weather the credit crisis by tightening their criteria and raising rates. Nationwide has revealed it will no longer offer home loans of more than £1 million, Woolwich will cease offering its two year and ten year fixed rate mortgage
deals and one five year deal, and last week First Direct withdrew its entire mortgage range to new customers.
Today's home buyer will have to find an average of £7,500 to cover the five per cent deposit on the average house price of £148,000, in addition to hundreds of pounds in arrangement fees and approximately £1,500 in stamp duty.
Some lenders, such as Alliance & Leicester, Cheltenham & Gloucester, and Britannia, now require a minimum deposit of 10 per cent.
Those who find it hard to save a deposit as the cost of living goes up will struggle to secure a first time mortgage
deal at all in these new conditions, let alone a competitive one, unless they have a parental guarantee or enter into a shared equity scheme.
Existing homeowners with 100 per cent deals will also be affected if they have not built up sufficient equity to cover 5 or 10 per cent of the property's value, because they will be unable to shop around in order to secure another deal and will face a huge rise in repayments.
Negative equity will also become a reality for many people as house prices are set to tumble 5.8 per cent this year, according to Nationwide. But this will offer little relief to first time buyers who have been waiting for prices to come down to get their foot on the ladder but in the current economic climate will find mortgages hard to come by.
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