Virgin Money PULLS 5% deposit mortgages as first-time buyers face house price fall risk

Virgin Money PULLS 5% deposit and Help to Buy mortgages temporarily due to ‘market conditions’ amid forecasts of house price fallsLender removes 5% deposit mortgages, commonly used by first-time buyersHouse prices are forecast to fall which leaves them exposed to negative equitySome brokers say 10% mortgages could be cut next as lenders guard against riskBy Helen Crane For This Is Money Published: 05:02 EST, 23 November 2022 | Updated: 05:53 EST, 23 November 2022

Virgin Money has withdrawn its 5 per cent deposit mortgages from sale temporarily to allow it to review ‘market conditions’. It comes amid fears that house prices may fall in the coming months and years, leaving those with large mortgages exposed to the risk of negative equity. Mortgage experts have said that other lenders were likely to follow suit, with some predicting that 10 per cent deposit loans could also fall by the wayside.  Virgin Money has withdrawn its 5% deposit mortgages from the market for new customersVirgin’s 5 per cent deposit products have not been available to new customers since 8pm last night, and mortgage brokers have been advised to send any outstanding applications to the lender ‘as soon as possible’. Existing Virgin Money customers wanting to transfer their mortgage to a 5 per cent deposit product, also known as 95 per cent loan-to-value, with the bank can still do so. Virgin Money told This is Money: ‘We’ve made the decision to temporarily withdraw our 95 per cent LTV range for new customers as we review our homebuyer proposition and monitor market conditions. ‘Our 95 per cent LTV range remains available to existing customers for product transfer.’ Mortgage brokers have voiced concern about what the move means for first-time buyers, who are the main users of low-deposit mortgages.   Five per cent is a wafer thin layer of equity in a falling market, so I would expect to see the end of these for the next 12 months Financial adviser Samuel Mather-Holgate If other lenders followed Virgin Money’s lead, it could become more difficult for those getting on the property ladder to find a suitable mortgage. Mortgages with smaller deposits are riskier for lenders, as the repayments are usually higher and the chance of negative equity greater in the event of house price falls. It means they sometimes withdraw them from sale at times of financial uncertainty, as they did at the beginning of the Covid-19 pandemic.  Jonathan Burridge of mortgage broker, We Are Money, said: ‘This last comment about market conditions worries me. Are we going to start to see low deposit mortgages disappear like we did at the start of Covid?’Mortgages with 10% deposits next to go?  Others said the move was sensible in light of the fact that some economists are predicting large house price falls. Samuel Mather-Holgate, independent financial advisor at Mather and Murray Financial, said: ‘Considering many economists think there could be a fall in house prices of up to 30 per cent, I am only surprised [10 per cent deposit] mortgages are still available. ‘Five per cent is a wafer thin layer of equity in a falling market from a risk management perspective so I would expect to see the end of these for the next 12 months.’Others said that removing 5 per cent deposit deals would ultimately be a good thing as it would shield borrowers from risk.  Graham Cox, director at broker Self-employed Mortgage Hub, added: ‘It’s likely many other lenders will follow suit and pull their 95 per cent LTV deals, as the extent of house price falls become clearer by the day. ‘But in a way, the lenders are doing borrowers with only a 5 per cent deposit a favour. ‘If you lose your job and can’t keep up with the mortgage payments, not only will you lose your home, but if the lender can’t recover the full loan amount when selling the property at auction, they’ll continue to pursue you for the difference. Not nice.’

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