Is your home in a mortgage blackspot?

As house prices fall, you could be locked out of top deals according to Savills, so take steps to boost equity while you can

Homeowners who took out two-year fixes last year are being urged to take steps to boost the equity in their homes — or face up to £3,000 a year premiums when their mortgage deals expire in 2010.

Exclusive figures from Savills, the broker and estate agent, reveal that hundreds of thousands of borrowers who secured mortgages last year with deposits of nearly 50% are likely to be denied access to the best deals.

House prices have fallen 17% since the start of 2008 and are generally expected to drop another 10% this year — meaning that these homeowners will see their equity fall below the 40% level at which the best mortgages can be achieved.

Melanie Bien at Savills Private Finance said: “Homeowners who thought they were safe could discover they no longer qualify for the cheapest deals. Others risk falling into the danger zone of trying to get a mortgage with little over 5% equity.”

society blamed low mortgage approvals for a 1.3% fall in house prices in January, or 16.6% in the past 12 months, despite an increase in inquiries from prospective buyers.

More than half of mortgages taken out last year were fixed-rate deals, with the vast majority over two years — so many will come to the end of their deals next year.

Borrowers in Exeter and Brighton took out loans with an average loan-to-value (LTV) — the loan as a proportion of the property price — of 57% and 54% respectively during 2008. With another 10% fall in prices they would be forced to borrow 67% and 64% by 2010 (see map).

If they took out their loan at the start of last year — before the 16% drop in prices during 2008 — they could see their LTV surge to 83% and 80% respectively.

Last week, Woolwich introduced a market- leading deal fixed at 2.49% for one year — but only for borrowers with a 40% deposit.

Those with that amount of equity in their home can achieve an average rate of 4.43%, while those with just 25% typically pay 4.68%, according to Moneyfacts, the financial-data firm.

On a typical £200,000 mortgage, the difference is £40 a month, or £480 a year.

The picture is worse for borrowers in Bristol and Cambridge, who will see their equity reduced to less than 25% and face paying an average 6.29%. That will cost an extra £220 a month, or £2,640 a year, on a £200,000 loan, compared with the best deals for those with bigger deposits.

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