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100% mortgages - A thing of the past?

Previous to the credit crunch of 2007 one hundred percent mortgages for first time buyers seemed to be offered by all of the major financial institutions in the Western World to even the most risky of potential buyers.

This hazardous lending practice was of course a contributory factor that led to the financial disaster being so severe and resulted in the massive bailouts that governments used to keep banks afloat.

Lehman Brothers, Merrill Lynch, Fannie Mae, Freddie Mac, Washington Mutual, Wachovia, and AIG are just some of the massive institutions that were left exposed to to the massive financial problems.

Flash forward to 2011 and 100% mortgages for first time buyers are a thing of the past.

Lending institutions are now operating with a much tighter fiduciary and fiscal policy and are reluctant to lend to buyers where the bank will be exposed to negative equity. In many areas and countries house prices are expected to fall over the next two to three years.

Banks aware of this are reluctant to loan amounts over the expected drop in value of the house over the next 12 - 36 months.

For example, if the expected fall in house prices is 30% as it is for some houses in the Dublin region of Ireland this means that the banks are unwilling to lend more than 70% of the value of the house at this time.

This has resulted in many house loans for properties which require significant renovation work falling through due to banks and financial institutions being unwilling to lend amounts for repair work.

The expectation is that purchasers will absorb the negative equity that will result from the fall in house prices with their deposits and if there is any problems with the security of a mortgage the banks will be able to sell the property and recoup the borrowed amount.

For many lenders this has put mortgages beyond them as they struggle to amass the required deposit needed to complete the mortgage process.

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