The house price is dropping throughout the last few months and that leads to a serious concern from the banks over high mortgages in relation to the value.

Data showed that there is an increase in mortgage approvals alongside with the decrease in house prices. This relaxing approach of lending and availability of low house prices should benefit the buy-to-let investors in theory. However, despite these factors, borrowers are faced with a large deposit challenged by the mortgage lenders.

The falling of house price phenomenon demonstrated a large loan-to-value (LTV) ratio, where mortgage loans are relatively high to the property value. This generates a fright ambience among the mortgage lenders.

Charles McDowell told Financial Times that under this situation, mortgages above £3 million have attracted and been reviewed by banks like Barclays and NatWest. To reduce the loan-to-value (LTV) ratio, banks require the borrowers to top up the equity, which tends to apply mostly on the large property portfolio investors. FT further revealed that borrowers with multi-million pound portfolio have been asked by banks to pay off up to 20% of the mortgage; borrowers may even face the order to repay their entire loan and to sell their property if unable to do so.

Banks and lenders are now demanding more cash from borrowers for their own security. They have the right to review and revalue the property. Borrowers with de-valued properties may have to pay off part of their mortgages so as to reduce the ratio of loan-to-value (LTV).

Apart from that, lenders’ worries over the fall of house price can also be eased by increasing the deposit of mortgage deals. Banks now require a higher deposit of mortgage deals from borrowers, according to Moneyfacts.

Mortgage deals with loan-to-value of 85% or less (i.e. deposit of 15% or above) have gone up from 1,284 to 1,379, from March to April. The table below showed that more than two-third of overall mortgage deals required a high deposit of 25% and 40% from March to April, 2009. The demand of high mortgage deposit from the banks illustrated an urgent and cautious solution was required to relieve the lenders’ concern.

* Data Source: Moneyfacts / Table Taken From: BBC News (06/04/2009)

Mortgages are now relatively high to the property value due to the fall of house price and fall in equity. This concerns the mortgage lenders and they are now being careful in every step they do. In order to solve and reduce the large loan-to-value (LTV) ratio, buy-to-let investors have now become the targets of banks.

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