Virgin Money TAKES OFF 5% Deposit Mortgages as First-Time Buyers Face House Price Drop Risk

Virgin Money WITHDRAWS 5% deposit and help buying mortgages temporarily due to ‘market conditions’ amid forecast declines in house prices

  • Lender eliminates 5% deposit mortgages, commonly used by first-time buyers
  • House prices are forecast to fall, leaving them open to negative actions.
  • Some brokers say 10% mortgages could drop next as lenders hedge against risk

Virgin Money has temporarily withdrawn its 5 per cent deposit mortgages from sale to allow it to review “market conditions”.

It comes amid fears that house prices could fall in the coming months and years, leaving those with large mortgages exposed to negative equity risk.

Mortgage experts have said other lenders are likely to follow suit, with some predicting that 10 percent 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Virgin Money has withdrawn its 5% deposit mortgages from the market for new customers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 submit any pending applications to the lender “as soon as possible”.

Existing Virgin Money customers who want 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 have made the decision to temporarily withdraw our 95 per cent LTV range for new clients while we review our homebuyer proposition and monitor market conditions.”

“Our 95 percent LTV range remains available to existing customers for product rollover.”

Mortgage brokers have raised concerns about what the move means for first-time homebuyers, who are the primary users of low-deposit mortgages.

Five percent is a wafer-thin layer of capital in a falling market, so I’d expect to see the end of these over the next 12 months.

Financial Advisor Samuel Mather-Holgate

If other lenders were to follow Virgin Money’s lead, it could be more difficult for those on the property ladder to find a suitable mortgage.

Mortgages with smaller deposits are riskier for lenders, as repayments are typically higher and the potential for negative equity is greater should home prices fall.

It means that they are sometimes withdrawn from sale in times of financial uncertainty, as they did at the start of the Covid-19 pandemic.

Jonathan Burridge, of mortgage broker We Are Money, said: ‘This latest comment on market conditions worries me. Will we start to see low deposit mortgages disappear like we did at the start of Covid?

Mortgages with 10% deposits close to disappearing?

Others said the move was sensible in light of the fact that some economists are predicting big declines in house prices.

Samuel Mather-Holgate, independent financial adviser at Mather and Murray Financial, said: “Given that many economists think there could be as much as a 30 per cent drop in house prices, I am only surprised. [10 per cent deposit] mortgages are still available.

“Five percent is a very thin layer of capital in a falling market from a risk management perspective, so I would expect to see the end of these over the next 12 months.”

Others said that removing the 5 percent deposit offers would ultimately be a good thing, as it would protect borrowers from risk.

Graham Cox, director of self-employed brokerage Mortgage Hub, added: “Many other lenders are likely to follow suit and withdraw their 95 percent LTV deals as the scope of house price declines becomes more clear every day.”

‘But in a way, lenders are doing borrowers a favor with just a 5 per cent deposit.

‘If you lose your job and can’t keep up with your mortgage payments, not only will you lose your home, but if the lender can’t recoup the full amount of the loan by selling the property at auction, they’ll continue to chase you for the difference. Not well.’