High LTV mortgages will become more expensive according to Nationwide

Filed Under Finance

In a short and to the point sentence, the Nationwide has summed up the new situation for mortgage borrowers following the recent credit crunch problems

“From now on risk must have its price”

This is what they mean by this statement:

High loan to value (LTV) mortgages, which are inherently more risky than those with lower LTV’s, will be more expensive from now on. For example 95% mortgages now have 0.45 percent higher rates than 75% mortgages.
Sub prime borrowers, who also represent more risk to the lender, will also pay more for their mortgages from now on.

The Nationwide also predicts that as highly leveraged borrowing (mortgages with high LTV’s) will become more expensive, the number of these mortgages will decline in the future. This will probably impact the property market, particularly the buy to let sector, which depends on high LTV’s to raise funds to purchase property for growing portfolios.

It is not just budding property entrepreneurs who may be affected by this tightening of lending criteria. First time buyers largely depend on 95 percent or even 100 percent mortgages to buy their first home. They too will find mortgages more expensive and more difficult to obtain, particularly if they have any credit impairment.

So there do appear to be a number of factors that could force house prices downwards, or, at least, slow the rate at which they increase in value.

All is not bleak, though. The Nationwide also predicts that Bank of England interest rates are less likely to rise now, which is good news for those who are willing to borrow less and have taken care of their credit records.