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Mortgage lenders relax loan terms

Mortgage lenders have started to relax slightly the requirements they need for granting a home loan, figures indicate.

Two-thirds of mortgage deals still require borrowers to put down a deposit of at least 25%.

But figures from the financial information service Moneyfacts show a recent rise in the number of deals demanding smaller down-payments.

The total number of mortgage deals has risen by 7% in the past month, with more needing only a 15% or 20% deposit.

"We are seeing a number of mortgage providers slowing reducing their strict criteria and are increasing the number of products available to those that can raise a 15% deposit, be it at a higher initial interest rate," said Darren Cook of Moneyfacts.

Ray Boulger of mortgage brokers John Charcol said lenders were responding to competitive pressures.

"As lenders find the pool of customers who can put down a 40% deposit is shrinking, they are being forced to ask for smaller deposits," he said.

Changing times

A year ago, with the contraction of the property market gathering pace, more than half the available mortgages still needed a deposit of only 10%, or even less.

NUMBER OF MORTGAGE PRODUCTS AND DEPOSIT NEEDED: MAY 09 VS APRIL 09 0% deposit - unchanged at 10 5% deposit - up from 3 to 6 10% deposit - up from 93 to 96 15% deposit - up from 258 to 272 20% deposit - up from 105 to 143 25% deposit - up from 603 to 633 40% deposit - up from 413 to 429 Source: Moneyfacts

But last autumn, mortgage rationing by the UK's banks and building societies became much more aggressive.

By the end of the year the once-traditional 10% deals were rare and there are now just 96 of them.

And by last December more than half of all home loans needed at least a 25% deposit.

However, this year has seen some relaxation by the lenders.

"What we have seen over the past few months is a change in lenders offering their best interest rates at 70-75% loan-to-value rather than 60%," said Mr Boulger.

The number of deals needing a 15% deposit has risen, from 209 at the start of last December to 272 now.

And the number of 20% deposit loans which are available has gone up from 105 to 143 in the past month.

"Banks consider a 75% loan to value as a conservative benchmark and it is generally where they see themselves getting their money back if a property is repossessed," said Mr Cook.

"With more mortgages becoming available at higher loan to values, it can be seen that a number of banks are regaining some confidence within the housing market," he said.