As house prices fall for the third consecutive month and the number of low deposit mortgage deals rises, could result in the creation of “mortgage prisoners”.
Following the financial crisis in 2009, the first generation of mortgage prisoners was created, as lenders were forced to abide by the new affordability checks, which resulted in borrowers being left on a Standard Variable Rate (SVR). As the SVR is typically double the better fixed rate deals, home owners are left paying an average of £4,900 more than if they are on one of the competitive fixed rate deals.
The number of low deposit mortgage deals being offered by lenders has increased, from 190 products which require a 5% deposit, to 287 mortgage deals available today. According to experts, the people who are most vulnerable are those who have had to scrape a deposit together, during a period when house prices have soared and wage growth has remained stagnant.
As property prices start to fall, buyers may find that they are forced onto the lender’s SVR, which means they will be paying thousands more. This situation could also result in negative equity, which makes it even more difficult to find a low rate mortgage deal.
Charlotte Nelson, from Moneyfacts, said that the increased number of low deposit mortgage deals was putting more buyers at risk, as falling property prices could easily result in negative equity. Mortgage advisors take a CeMAP course so that they have all the facts to enable them to find good value deals.
