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FTBs go for high LTV deals

first-time buyers opting for mortgages with LTVs over 100% are doing so to preserve capital to decorate their homes rather than cover deposits, a survey reveals.

Research from Mortgage Advice Bureau has found the number of first-time buyers taking on mortgages with LTVs of 100% or more doubled between 2005 and 2006.

But it warns many first-timers opting for 100%-plus LTVs are doing so to finance new furniture or decorating sprees.

Brian Murphy, lending manager at MAB, says: “100%-plus mortgages offer an opportunity to move away from increasing monthly rental payments and offer some buyers the chance to preserve capital without using it as a deposit.”

But he urges borrowers to remember that high LTV products attract higher interest rates and, in some cases, higher lending charges.

Melanie Bien, associate director at Savills Private Finance, says: “It’s one thing if buyers are using money for deposits or refurbishments, as this will add to a property’s value, but it’s more of a problem if they are frittering it away on sofas.

“They will be in negative equity from the start and paying a high rate. It would be far better to wait and save up to buy furniture.”

Ray Boulger, sen-ior technical manager at John Charcol, says university debt is one reason for the demand for high LTV mortgages, with many first-time buyers opting to use 100% deals to consolidate debts onto a lower mortgage rate, reduce monthly repayments and in-crease their affordability at the same time.

He adds: “This is sensible as it could mean the difference between being able to afford a property and not. But I’m not sure a huge number of first-time buyers are using 100% products to furnish their properties. Most people don’t borrow more than they need.”

Boulger believes several lenders are looking to enter the 100%-plus LTV market in 2007.


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