Despite the continuing tightening of lending criteria in the mortgage market, especially on riskier loans, five mortgage lenders are still offering the much talked about 125% mortgages.
However 125% loan to values may not be quite what they seem. Mortgage lenders have put such tight restrictions on them that only in very specific circumstances can a mortgage borrower will get the full 125% loan.
For example Abbey,Alliance and Leicester and Coventry will restrict the extra loan, secured or unsecured to a maximum of £25K. Effectively this means that the property can only be worth a maximum of £100K to achieve a 125% loan.
This week Northern Rock placed further restrictions to some of its Together range mortgage products. On the lower rate mortgage deals, the unsecured loan is limited to a maximum of 30% or £10K. In these circumstances, the property would have to be worth a maximum of £33K in order for the borrower to get the full 125%. A 30% or £30K loan is still available but at a 0.20% higher rate.
At a time when the housing market is showing signs of a slowdown, it is especially important that borrowers take full consideration of what borrowing more than the current value of their property could mean for them in the future.
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