Virgin Money PULLS 5% deposit mortgages as first-time buyers face house price fall risk
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Virgin Money DRAWS 5% down payment and help buying temporary mortgages due to ‘market conditions’ amid forecasts of falling house prices
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Virgin Money has temporarily withdrawn its 5% deposit mortgages in order to review ‘market conditions’.
It stems from fears that house prices could fall in the coming months and years, exposing those with large mortgages to the risk of negative equity.
Mortgage experts have said other lenders are likely to follow suit, with some predicting 10 percent deposit loans could also fall by the wayside.
Virgin Money has withdrawn its 5% deposit mortgages from the market for new customers
Virgin’s 5 percent deposit products have been unavailable to new customers since 8pm last night and mortgage brokers have been advised to send open applications to the lender ‘as soon as possible’.
Existing Virgin Money customers who want to switch their mortgage to a 5 percent deposit product, also known as a 95 percent loan-to-value, can still do so with the bank.
Virgin Money told This is Money: ‘We have made the decision to temporarily withdraw our 95 per cent LTV range from new customers as we review our proposal for homebuyers and monitor market conditions.
“Our 95 percent LTV range will continue to be available to existing customers for product transfer.”
Mortgage brokers have expressed concern about what the move means for first-time buyers, who are the main users of low-income mortgages.
Five percent is a wafer-thin layer of equity in a declining market, so I expect this to come to an end in the next 12 months
Financial advisor Samuel Mather-Holgate
If other lenders followed Virgin Money’s lead, it could become more difficult for those moving up the real estate ladder to find a suitable mortgage.
Mortgages with smaller deposits are riskier for lenders, because the repayments are usually higher and the risk of undervaluation is greater when house prices fall.
It means they sometimes take them off sale in times of financial uncertainty, as they did at the start of the Covid-19 pandemic.
Jonathan Burridge of mortgage broker We Are Money: ‘This last comment about market conditions worries me. Are we going to see low deposit mortgages disappear like we did at the start of Covid?’
Mortgages with 10% down payments coming soon?
Others said the move was wise in light of some economists predicting major house price falls.
Samuel Mather-Holgate, independent financial adviser at Mather and Murray Financial, said: “Given that many economists believe house prices could fall by as much as 30 percent, I am only surprised [10 per cent deposit] mortgages are still available.
“Five percent is a wafer-thin low equity in a declining market from a risk management standpoint, so I expect that to come to an end in the next 12 months.”
Others said it would ultimately be a good thing to cut 5 percent deposits because it would protect borrowers from risk.
Graham Cox, director at broker Self-powered Mortgage Hub, added: ‘It is likely that many other lenders will follow suit and withdraw their 95 per cent LTV deals as the magnitude of house price falls becomes more apparent by the day .
“But in a sense, the lenders are doing borrowers a favor with just a 5 percent down payment.
“If you lose your job and can’t keep up with the mortgage payments, not only will you lose your house, but if the lender can’t get back the full loan amount when the property is sold at auction, they will continue to sue. you for the difference. Not nice.’