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Is the time right for 100% mortgages to return? – Phillips

by: John Phillips, group operations director at Just Mortgages and Spicerhaart
  • 20/10/2017
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Is the time right for 100% mortgages to return? – Phillips
The economy is not ready for an interest rate rise, but can the same be said for 100% mortgages?

Deposit-free mortgages were pulled after the financial crisis as thousands of homeowners found themselves in negative equity, so it’s no surprise the market is guarded about their return.

However, we’re in a very different world to the one back in 2007. A decade on, rising property prices and record low interest rates arguably make 100% mortgages a viable option once more.

Of course, it’s not just about helping first steppers who are struggling to raise a deposit. Competitive rates and new product ranges will also attract new remortgage customers which makes sense considering remortgaging activity has hit record levels, taking a 37% market share.

 

Times are changing

The high loan to value (LTV) market has grown in recent years and has been supported by the Help to Buy scheme, encouraging providers to lend to those with small deposits.

In addition, the number of mortgages available at 90% LTV isn’t far from the record of 708 set back in 2008. In fact, it was only last month that the Co-op Bank cut its 90% LTV fixed rates by 0.25%.

In many cases, those paying higher rents simply cannot save for a deposit. However, more often than not, rents exceed their potential mortgage payments , even at 100%.

If someone can pay higher rent, then affordability shouldn’t be an issue as their mortgage repayments would often work out less.

 

Responsible lending

When considering 100% mortgages, responsible lending is key. It is about lending responsibly to those with a proven track record of paying rent, but who lack equity.

If these mortgages do make a comeback, then in certain circumstances the Financial Conduct Authority (FCA) must make the availability for unsecured lending more difficult. For example, the applicant’s affordability should be stress tested at much higher rate levels.

All in all, it is great that the industry is encouraging product innovation and helping even more first-time buyers to get onto the housing ladder.

 

Don’t repeat past mistakes

However, we still don’t know how the economy and, more specifically, the housing market will hold up as the country negotiates its departure from the EU.

It’s also important that we don’t repeat mistakes made in the past when these mortgages allowed people to take on debt with no security. There’s no doubt that 100% mortgages would have wide appeal, but lenders and brokers must exercise caution while ensuring safeguards are in place to protect borrowers.

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