Two of Britain's biggest mortgage lenders, Alliance & Leicester and Britannia building society, have doubled the minimum deposit demanded from first-time buyers in the latest sign that banks are anticipating a downturn in house prices.
Borrowers will have to pay a minimum deposit of 10% on the price of a property compared with 5% before. Since the typical first-time buyer pays £147,834 for a home, it raises the cost of the deposit from £7,392 to £14,783.
According to the financial data provider Moneyfacts, 11 mortgage lenders have reduced the maximum loan-to-value ratios on some or all of their mortgage range since the beginning of December. This marked an about-turn from the position before the onset of the credit crunch, when lenders pushed loan-to-value ratios to highs of 130%, with 95% the norm.
Trying to find the cash for a deposit is regularly cited as the toughest hurdle for first-time buyers, so the increase in deposits is likely to deter buyers in a property market that is already slowing markedly.
A spokeswoman for Britannia said: "At the end of December, Britannia took the decision to impose a maximum loan-to-value limit on all products of 90%. This is due to the current external environment, with house prices falling over the last few months and the Council of Mortgage Lenders forecast that house prices will continue to fall in 2008."
The credit crunch is blamed for making banks more hesitant about lending. Northern Rock was widely regarded as the most aggressive lender in the 100%-plus loan market, with its Together product a favourite with first-time buyers unable to afford a deposit. Scottish Widows Bank, which specialises in mortgages for graduates, cut its maximum loan-to-value this month from 102% to 95%. Other lenders that have cut maximum loans include Yorkshire building society, Manchester building society and Egg.
David Knight, a mortgage analyst at Moneyfacts.co.uk, said: "With mounting evidence that housing prices are cooling, combined with the increasing number of borrowers facing debt problems, it is not welcome news for those consumers with only a small amount of equity."
He said borrowers who come to the end of a deal but found themselves still borrowing at a high loan-to-value ratio could also find the choice of deals limited, or may be forced to pay a much higher price.
Ray Boulger, of the mortgage broker John Charcol, said he expected big lenders such as Halifax, Abbey and Nationwide to continue to offer 95% loans, though he warned that the interest rates charged may move higher as competition diminishes
