First-time buyers get the cash

Home-owners who are used to borrowing mortgage money against the equity in their homes, to pay for school fees, a new car, holidays or home improvements, will now find it difficult to raise fresh cash. Lenders are now considering this as higher risk money.

Money is in short supply and lenders are saving it for new borrowers. Virtually none are prepared to offer further advances, wanting to know what the money is for. Lenders do not want to provide cash for customers trying to pay off credit card debt — indicating that the person may have overborrowed already.

Louise Cuming of moneysupermarket.com says: “Most lenders are not prepared to go beyond a maximum loan- to-value of 75 per cent for further advances, if they are prepared to increase the loan at all.

“The lenders are being conservative about valuations, too, making their decision by effectively asking what they could get for a property if they had to sell it tomorrow.”

Some lenders want home-owners aiming to carry out home improvements to do the work first — presumably using expensive bank loans — and only when the work is completed will the mortgage lender release the extra funds. Home improvements are more likely to get further advances as they tend to add value to a property.

Richard Morea of mortgage broker London & Country tells a similar story. “If people are raising capital, and income and maximum loan-to-value don’t stack up, lenders just aren’t advancing the money,” he says.

“We have had clients who have had to pay for two valuations because the first one came in too low and they had to go to a different lender.” At an average cost of £400 a valuation, this is an expensive way of being turned down.

Morea says that if you are considering a further advance, mentally deduct at least 25 per cent from what you think your property is worth to work out the maximum 75 per cent loan-to-value.