28th February 2011
Andy Tate, customer and commercial director at Northern Rock, says: "Our new products, which will be offered within our prudent risk appetite and only to customers with good affordability, should appeal to those who have lower deposits and first-time buyers."
Previously Northern Rock offered between 60% and 85% of the value of a home. This was a far cry from the heady pre-credit crunch days when its "Together" mortgage offered up to 125% of a property's value.
However, this risky lending ended with Northern Rock being bailed out by taxpayer three years ago. It collapsed after its business model of borrowing money on the money markets to lend out as mortgages collapsed when the credit crunch hit. However, the Government is keen to return the bank to private ownership at some point – and offering higher LTV mortgages will boost the bank's revenues and profitability ahead of this.
So are things finally improving for first-time buyers or are mortgages at high LTVs something only state-backed banks can afford to gamble on?
Nigel Lewis, property analyst at Findaproperty.com, says Northern Rock is offering high LTV mortgages now because it believes that the house price drops seen over the past two years are now over and that a more stable housing market will now follow.
"This is good news for first-time buyers put off by the prospect of negative equity because at worst house prices are due to be flat for the next year or so with potential rises in areas of high demand," he says.
Northern Rock isn't the only lender dishing out loans at 90%. There are about 200 90% LTV mortgages available at the moment – but this is only a quarter of the number offered before the financial crisis hit.
However, rates are much higher than for products where the borrower has a bigger deposit – hence, the deals boost a lender's profitability. For example, the Co-Operative Bank offers a five-year fixed rate mortgages at 90% LTV at 5.89%. Those with a 25% deposit can get a five-year fix at 5.09% with the same lender.
Some pundits are doubtful about whether many people will even be eligible for the new Northern Rock products.
Melanie Bien, director of independent mortgage broker Private Finance, says: "How useful this offering is will be dependent on the credit scoring; other lenders offering 90% LTV impose much stricter credit scoring than on borrowers with bigger deposits, resulting in many seemingly-good applicants being rejected.
"Subsequently, while other lenders claim to offer 90% LTV, the reality is that they are often paying lip service to the Government because they don't actually do much lending at this level."
See also: House prices: First time buyers needed
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