Sensible Mortgage Deposits Back?
Northern Rock is to offer 90% home loans – a massive change from the 20-30% deposits needed of late.
The nationalised bank will roll out mortgages of up to £450,000 in return for deposits of 10%. The previous minimum deposit required was 15%.
Critics such as the Daily Mail inevitably criticised the 90% deal as “a return to the risky lending that saw it implode in 2007”.
The Mail went on: “The decision comes three years after a humiliating bail-out by taxpayers that was a defining episode of the credit crunch and global financial meltdown.”
In 2007, Northern Rock received £3bn in taxpayers’ cash.
It had previously offered a mortgage called Together that let customers borrow 125% of the value of their home.
But Northern Rock has insisted its new loan will bear little comparison with Together, and says it will be extremely careful about which home buyers would be allowed to take out one of its new 90% LTV products.
Ron Sandler, executive chairman of Northern Rock, said: “The first-time buyer market is the one that needs most assistance. We see this as a very responsible form of lending.”
He added that customers will be “appropriately screened for risk and affordability”.
Northern Rock’s new mortgages are fee-free but they are certainly not cheap, and they are aimed at making profits for the lender as it tries to gear up for a sale, possibly later this year.
The deals will cost borrowers considerably more than 0.5% base rate and will fuel arguments that lenders have apparently ‘good’ deals on offer, but are actually so expensive, that borrowers would not be able to fund monthly payments.
The new Northern Rock range includes a five-year fix at 6.59%, a three-year fix at 6.49% and a two-year fixed rate at 5.99%.
Melanie Bien, director of mortgage brokers Private Finance, said: “Borrowers should not assume it [the new 90% mortgage] will mean rock-bottom rates.”
A first-time buyer taking out a £150,000 loan with a five-year fix would be paying just over £1,000 a month.
Ray Boulger, senior technical manager at mortgage broker John Charcol, said: “I would not regard the new Northern Rock mortgages as reckless at all.”
EDIT: Since the release of this article, the Skipton Building Society has also announced a 95% mortgage product, so here’s hoping for a return to normaility!
