Remortgagers could face higher loan repayments

The fast-diminishing market for 100 and 125 per cent mortgages could see remortgagers facing higher monthly repayments, an economist has warned.

Ed Stansfield, property economist for Capital Economics also said, unless house prices became more affordable, first-time buyers would be hampered in their attempts to get on the property ladder - and this in turn would reduce demand for property.

The result, he warned, would see the current slowdown in house prices continue for some time.

A number of lenders have this week pulled mortgages offering higher loans than the value of properties from the market. These products work by combining a traditional mortgage, of up to 95 per cent, with an additional unsecured loan on a short-term fixed interest rate.

According to Mr Stansfield, they accounted for a small proportion of the market with only six per cent of first-time buyers and one per cent of existing homeowners opting for these loans.

However, he added: "Borrowers looking to remortgage as their fixed interest rates expired are likely to find that, in today's new risk-averse market, their unsecured loans preclude them from the current "best buy" deals, with a rise in their monthly repayments the most likely outcome."

And he feared the products' withdrawal would cause further struggles for the first-time buyer market.

"If house prices do fall to more affordable levels, the lack of 100 per cent mortgages will hamper a subsequent recovery in first-time buyer demand since, in contrast to the last year or two, they will now have to take the time to save a deposit," he said.

He said this, combined with evidence the high loan-to-value mortgages were suffering from falling demand and the fact lenders were becoming increasingly more risk-averse, supported its view the housing market correction was "unlikely to be short".