Just two years ago, homebuyers were able to purchase houses with nothing down. This was accomplished through the use of 100% mortgages. In a freewheeling credit market, lenders were thrilled to reap larger overall profit, knowing that within just a few short months, the rapid appreciation of home values would protect for them their investment. That was then and this now. Today, real estate values seem to be locked into a deflationary downward spiral. Most homes are worth, on average, 20% less, according to bank assessments, than they were just 24 months ago. The days of 100% mortgages are over and will likely never return.
However, all is not grim for potential homebuyers. Yes, banks and other financial institutions are requiring minimum 10% deposits and the average deposit placed, when purchasing a new home is actually closer to 20% of the total purchase price. But, with home prices having dropped at least thirty percent across the board, homebuyers are now receiving a much fairer value. Also, any deposit placed on a home is direct homeowner equity. For example, if one were to purchase a home valued at 200,000 pounds two years ago, with 0% down and a 100% mortgage, they would have 0% equity and owe the full 200,000. With that same home priced at just 140,000 pounds and a mere 10% deposit, the amount owed is a much smaller 126,000 pounds. Using a mortgage calculator, the monthly payment drops from 1,200 pounds to just 755 pounds per month.
While it is true that the era of easy credit has passed, it is equally true that lower home prices and reasonable down payments will ensure for homebuyers a much brighter long-term financial picture.
