125 per cent mortgages were a relatively new loan on the UK mortgage market before the credit crunch of late 2007, and similar to 100 percent mortgages, are fairly self-explanatory.
The 2007/2008 credit crunch in the UK mortgage market severely affected the future of 125 per cent mortgages.
Update: Like the adverse credit mortgage market, the 100 and 125 per cent mortgages niche is simply considered too risky by the majority of lenders due to the severity of the 2007/2008 credit crunch.
For this reason, most mortgage lenders pulled down their 125 per cent mortgage loans from the market, meaning this product is now relatively rare on the UK market and extremely hard to satisfy lending criteria.
Lenders offer borrowers 90 plus percent of the value of their property, with an extra 25 per cent in an unsecured loan to cover the costs of buying a house and any improvements that need making.
Welcome to the Mortgages.co.uk guide to 125 per cent mortgage loans.
Who offers 125 per cent mortgages?
Very few mortgage lenders now offer 125 per cent mortgage loans, as more and more have withdrawn their product ranges.
Before the credit crunch, products included the MortgagePlus 125 per cent mortgage from Alliance & Leicester, with some lenders lending 100 per cent plus on mortgages for years. These lenders included Northern Rock, Mortgage Express and BM solutions.
What are the benefits of a 125 per cent mortgage?
The lending can exceed 100 per cent without the need for the borrower to look for a secured loan with another lender, possibly costing them more.
Who are 125 per cent mortgages available to?
125 per cent mortgages are available to all sectors of the mortgage market who can prove that an adequate repayment vehicle is in place. This includes 125 per cent mortgages for first-time buyers, next-time buyers, and people releasing equity in their homes.
How do 125 per cent mortgages operate?
Generally, 125 per cent mortgages operate in the following manner: 90 or 95 per cent of the property value is lent as usual, with the balance of the borrowing made up by an unsecured loan. Although called 125 per cent mortgages, these products do not always constitute 125 per cent of property value; in fact this is the accepted maximum.
What are the pitfalls and disadvantages of 125 per cent mortgages?
125 per cent mortgages are usually lent at much higher rates of interest than standard mortgages. Putting down a solid deposit remains the best way for first-time buyers to get on the ladder. Borrowers should also watch out for higher lending charges, which some lenders apply.
Are 125 per cent mortgages available for bad credit mortgage borrowers?
Some lenders may consider mortgage applications for 100 per cent plus mortgages and remortgages for those people who have a bad credit history. This depends on the record of arrears, CCJs, bankruptcy, IVA and repossession.
How should I go about getting a 125 per cent mortgage?
For more information about 125 per cent mortgage loans and to get a 125 per cent mortgage loan quote, please use our Mortgage Enquiry Form and one of our experts will contact you for further assistance.