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What a difference a year makes to mortgages

This time last year Northern Rock was just another bank and the words 'credit crunch' had no significance. One year on and the mortgage world is a completely different place.

Maximum loan to values

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The dust has finally settled on the surge of mortgage lenders reducing loan to values. Mortgage borrowers with a deposit of less than 10% have got a lot less choice of mortgage products than a few months ago.

In fact exclusive research from moneyfacts.co.uk shows that over the past year almost a third of mortgage lenders have reduced the maximum loan to value they are prepared to offer.

Whereas a year ago mortgages at 95% loan to value were the most competitive, mortgage lenders are taking a much more cautious attitude to risk; now you are most likely to find better mortgage deals with a larger deposit, say at 75% loan to value.

In reducing loan to values, mortgage lenders are making first time buyers look at getting a mortgage in a different light. Before, a prospective first time mortgage buyer would be mainly concerned with how much money they could borrow on their income. Now it will be where the deposit is going to come from, for those without help from parents it is an almost impossible situation.

100% mortgages

Not only is there a limited choice out there for mortgage borrowers without a deposit but rates on the few mortgage products that remain are continuing to rise. This week Abbey increased its 100% loan to value variable tracker mortgage to 8.04% - with the average now at 6.56%. The true cost of a mortgage at 100% loan to value has increased by almost £130 over two years.

Self certification

Unsurprisingly the choice of mortgage products for those who wish to self-certify is also dwindling. Like the full status 100% loan to value market, lenders are a lot more reluctant to lend at 90% on self-certification mortgage products. There's been a big increase in true cost over two years of £1,245.

Trackers for term

In such uncertain times one option for mortgage borrowers coming off fixed rate mortgage deals is to go for a penalty free tracker mortgage for term. These mortgage deals have not escaped the loan to value tightening and margins are still being increased. Despite the last two cuts in the Bank of England base rate and it now being equal to what it was this time last year, the true cost of these mortgage deals has also increased.

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