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Fears of being swamped by pent-up demand are likely to see Northern Rock moving slowly back into the market for first-time buyers.
The promise of a new home loan at up to 90% loan-to-value (LTV) - the ratio of debt to the buyer's deposit or equity - was met with ambivalence yesterday by brokers and mortgage price comparison sites, which suggested that the government-owned bank would take tentative steps into this still higher-risk end of the mortgage market.
Andrew Montlake, of the mortgage broker Cobalt Capital, said: "The big question is whether the minute they put their head above the parapet, will they be completely overwhelmed?
"There is huge pent-up demand out there from first-timers, and so I think they'll take a delicate first step to avoid launching a deal that brings in masses of customers that could badly affect other parts of the deal, such as service and administration."
David Hollingworth, at the broker London & Country, also warned that any first-time buyers or households desperately seeking a cheap, affordable remortgaging deal should not pin their immediate hopes on Northern Rock. "While the hope is that the Rock may just bring a little bit more competition from the lenders into the market, it won't change the market overnight - remember, it's only £5bn being pumped in for the first year," he said.
The £5bn available for Northern Rock to pump into the mortgage market this year just over 10% of lending at last year's sharply reduced levels.
While many 90% LTV deals have dried up in the wake of the credit squeeze, those that have remained for buyers with a 10% deposit are often pegged at high interest rates. Halifax is offering a five-year fix at 7.49%, Abbey a five-year fix at 7.09%, and FirstActive a two-year fix at 6.89%.
Brokers estimate that for Northern Rock to attract homebuyers, the rate for a two-year fix at 90% LTV would have to hover at about 5.5%-5.9%.
However, the bank will not launch its 90% LTV deal until March and has yet to decide the rate or how much of the overall £14bn in fresh funds will be devoted to these loans. Nor has it determined whether existing Northern Rock customers will be able to switch from their current deals, although it is planning to permit homeowners with rival lenders to remortgage at its rates.
With the Bank of England base rate at 1% and plenty of households on variable-rate trackers paying barely 0.5 percentage points above the base rate, even a new 90% LTV deal at about 5.9% will still appear prohibitively expensive.
Northern Rock is expected to appeal to homebuyers who could find it difficult to obtain a loan elsewhere. The credit crunch and house price falls have punished buyers with either a small deposit or those remortgaging with little equity in their property, as lenders shy away from risky customers likely to face higher repayments when they remortgage. A glance at a list of the top five "best buy" two-year fixes from Moneyfacts financial data analysts shows that buyers need a deposit of at least 20% to secure a competitive rate.
A two-year fix at 3.49% with NatWest is available with a deposit of at least 25%. With only a 10% deposit, the best rate on offer according to Moneyfacts is 2.5 percentage points higher, at 5.99% with Clydesdale Bank.
This differential in interest rates can cost buyers dear, according to figures from London & Country. A couple buying a £250,000 house with a 25% deposit would pay £938 a month for the property with a repayment mortgage at NatWest's knock-down rate; a husband and wife buying the same-priced house next door but with only a 10% deposit would pay £1,448 a month with the Clydesdale deal.
Moneyexpert.com, a price comparison site, calculates that cautious banks and building societies have now pulled a third of all fixed-rate mortgage products and insist on an average deposit of 24% of the value of the property. The average loan-to-value across the market is now 76% compared with 89% this time last year, its analysis suggests.
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