As the name suggests, the loans offer many aspiring homeowners to purchase a new home with no deposit, as long as the household income matches the affordability of the amount they want to borrow.
Primarily marketed to tenants who might struggle to save a deposit while renting, the return of 100% LTV mortgages will give many the hope of moving by removing the burden of the need to save a hefty deposit.
Mortgage innovation
Product innovation from lenders is coming through and things like 100% LTV mortgages are a great way to get the property market revved up again, generating momentum and getting chains moving.
While homebuyers will still need the funds to cover their stamp duty, legal fees and moving costs, taking away the pressure of having to save for a deposit enables many who thought homeownership was a pipe dream to get on the ladder.
EPC planning: act now or risk the rush later
Sponsored by BM Solutions
Importance of due diligence
As with all lending, borrowing 100% of the property value comes with risk to both the purchaser and the lender, so it’s important that both parties do their due diligence.
For the buyer, there is a risk of finding themselves in negative equity if the value of the property goes down. For those happy to play the long game, this shouldn’t be a problem. Historically, property values come back after a dip, and those prepared to wait should find that they will break even again.
For the lender, there is a greater risk of repossessions on properties with 100% LTV mortgages if the homeowner finds themselves in negative equity with no contingency or exit plan.
Broker responsibility
For the right buyer, 100% LTV mortgages are a lifeline. Lenders want to lend, and we expect to see more innovation coming through to help do just this. With the re-emergence of these mortgages, there is a renewed responsibility on mortgage brokers to ensure these products are approached with care and suitability.
These products require an advice-led approach, which must focus on the borrower’s financial resilience.
Mortgage brokers must work closely with borrowers to assess their income stability and other financial commitments, including looking at rent payments and access to any savings.
Affordability checks must ensure that the borrower can withstand any economic waves without the equity buffer a deposit provides, and advisers must also talk to borrowers about the risks of falling into negative equity. 100% LTV mortgages are a great tool for many, but borrowers must understand the details of the products they are getting. With limited product availability, these products often attract higher interest rates, and this must also be considered.
100% LTV mortgages can fulfil the dream of homeownership for the right borrower, at the right time, under the right circumstances. Brokers have a responsibility to show the buyer all the options to help them decide what is right for them and their situation.
This is about guiding aspiring homeowners through big financial decisions while keeping their long-term goals at heart.
Sam Lindsay, mortgage and protection adviser at My Mortgage Angel
