And so the mortgages which let you borrow more than your property is worth are finally starting to get scrapped by some of the biggest lenders in the UK. It seems to have taken the credit crunch crisis in the USA and perhaps the downfall of Northern Rock in the UK for the banks to stop and think more responsibly about the salary multiples and Loan to Value (LTV) scales theyâre willing to give customers.
The combination of a mortgage say 5 times your salary, plus a high Loan to Value ratio, is a very scary thought if you ask me. Not only are you stretching your monthly salary i.e. making a huge chunk of salary going towards paying your mortgage but youâre also borrowing more than your property is worth in the first place, so you start off in negative equity. A very risky strategy to play in the housing market.
The stats go something like this; before Christmas a third of UK lenders offered 100 per cent mortgages, some offered more than 100 percent usually up to around 125 per cent of the property value. Right now only one lender in ten offers even the 100 per cent mortgage.
The general idea is that 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.
Simon Duffy writes for the Financial Blog a UK Finance Blog talking about all aspects of personal finance including loans blogs, credit cards blogs, tenant loans, credit cards blogs, mortgages blogs, insurance blogs and more.This article is free for republishing
Source: http://www.articlealley.com/article_479652_19.html
Keywords: 100 per cent mortgages, bad idea
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