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 falls

  • Lender removes 5% deposit mortgages, commonly used by first-time buyers
  • House prices are forecast to fall which leaves them exposed to negative equity
  • Some brokers say 10% mortgages could be cut next as lenders guard against risk

Virgin Money has withdrawn its 5 per cent deposit mortgages from sale temporarily to allow it to review ‘market conditions’.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Virgin Money has withdrawn its 5% deposit mortgages from the market for new customers

Virgin’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.’ 

Borrowers use our best mortgage rates calculator to check the best rates they could apply for based on their deposit and property value.

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. 

Analysts’ predictions vary, with many predicting falls in the region of 10 to 15 per cent next year, but some being more conservative and others going up to 30 per cent. 

The Office for Budget Responsibility predicted a 9 per cent house price fall in figures published  alongside the recent Autumn Statement.  

The OBR has said that house prices will fall 9% next year before rising again into 2026

The OBR has said that house prices will fall 9% next year before rising again into 2026

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.’

What to do if you need a mortgage 

Borrowers who need to find a mortgage because their current fixed rate deal is coming to an end, or because they have agreed a house purchase, have been urged to act but not to panic.

This is Money’s best mortgage rates calculator powered by L&C can show you deals that match your mortgage and property value

What if I need to remortgage? 

Borrowers should compare rates and speak to a mortgage broker and be prepared to act to secure a rate. 

Anyone with a fixed rate deal ending within the next six to nine months, should look into how much it would cost them to remortgage now – and consider locking into a new deal. 

Most mortgage deals allow fees to be added the loan and they are then only charged when it is taken out. By doing this, borrowers can secure a rate without paying expensive arrangement fees.

What will happen to mortgage rates?

This is Money’s regularly updated What next for mortage rates? guide rounds up the latest news on rates and analysis on what may happen next. 

What if I am buying a home? 

Those with home purchases agreed should also aim to secure rates as soon as possible, so they know exactly what their monthly payments will be. 

Home buyers should beware overstretching themselves and be prepared for the possibility that house prices may fall from their current high levels, due to  higher mortgage rates limiting people’s borrowing ability.

How to compare mortgage costs 

The best way to compare mortgage costs and find the right deal for you is to speak to a good broker.

You can use our best mortgage rates calculator to show deals matching your home value, mortgage size, term and fixed rate needs.

Be aware that rates can change quickly, however, and so the advice is that if you need a mortgage to compare rates and then speak to a broker as soon as possible, so they can help you find the right mortgage for you.

> Check the best fixed rate mortgages you could apply for 



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