And another one bites the dust. First there was Alliance and Leicester, smarting over its £185 million credit market write-down announced earlier this week, then there was Abbey and then the Coventry Building Society – 125 per cent mortgages are going the way of the dodo.
You could be forgiven for exclaiming 125 per cent mortgages – they should never have been offered in the first place. But amongst the news revealed over the last few days was this staggering revelation.
Abbey’s 125 per cent mortgage was only launched last autumn – as an experiment – an experiment in irresponsible lending – more like.
Does that mean that 125 per cent mortgages are gone altogether? Well you know, high up in the trees, perched there on a precarious branch, there is such a beast. It is offered by the retail arm of the Bank of England – sorry, Northern Rock.
Now it was said here yesterday how Northern Rock seems to be pricing its 125 per cent mortgages so high few can afford them – as if it is trying to get its customers to pay off their debt, so that it too can reduce its exposure to the government. This begs the question, of course, where are these customers going to go. Presumably, they will have no choice but to sell and then rent.
So what are the implications for house prices? Well it seems the key lies with buy-to-let investors.
Some may argue that house prices will be unaffected – that buy-to-let will move in as these holders of 125 per cent mortgages move out – and that as demand for rental properties amongst tenants rises – rent will go up, justifying further investments from buy-to-let-investors.
Well that may be true, but it seems more likely that investors whose heads don’t need examining, will wait – and while they wait, some homeowners will bail out some more, supply of homes on the market will rise – and, you know the rest.
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