However, can the market justify bringing back such deals?
Giving their view in Market Watch this week are:
Dominic Lindley, principal policy adviser at Which?
Chris Gardner, director of Obligo.co.uk
Mike Jones, sales director of mortgages at Lloyds Banking Group
Dominic Lindley, principal policy adviser at Which?
100% LTV mortgages are risky.
They are risky for consumers, who following any price falls may find themselves stuck in negative equity in their existing home on an uncompetitive mortgage rate.
They are risky for firms, with the FSA finding a clear correlation between higher LTVs and default rates.
In a deteriorating economic environment, firms can find themselves with a mortgage portfolio with higher defaults, a longer duration and consequently suffer from funding difficulties.
Finally, they are risky for taxpayers, who ultimately have had to pick up the tab from failed businesses like Northern Rock, while those who funded the risky business model through the wholesale markets were bailed out.
There is also the issue of consumer responsibility.
Given that, for interest rates the only way is up, should we really be absolving consumers of any responsibility to save up a deposit if they want to get on the housing ladder?
Whilst many first-time buyers will find it extremely difficult to save up the 25% to 40% demanded by some lenders, is it unreasonable to expect them to save up at least 5%?
Personally, I don’t think the market can justify bringing back 100% deals at this stage.
If lenders insist on reintroducing these deals, then they should be long-term fixed rates, rather than reverting to a standard variable rate that the lender can increase at will.
They should also be portable, so that consumers are not prevented from moving, even if they are in negative equity.
Finally, we must ensure that there is a credible threat of failure, so when this type of business model goes wrong, taxpayers are not asked to pick up the tab.
Chris Gardner, director of Obligo.co.uk
The return of the 100% LTV mortgage was always going to grab headlines.
It is a product that came to symbolise the splurge in lending, which preceded and precipitated, the credit crisis of 2008.
In the pain and soul-searching that followed, it became a byword for rash lending and rash borrowing.
However, there is nothing inherently bad, dangerous or even unwise in the product.
100% mortgages have been around for years and never stopped being available in France and Italy, two countries where lenders have long been famously conservative.
The seeds of destruction sown in the run up to the credit crunch lay not in the products themselves, but in the lenders’ dangerously lax lending criteria.
The fact that Northern Bank is offering 100% LTV mortgages again does not mean that lenders are returning to the bad old days.
Far from it.
This product is a distinctly cautious proposition. The mortgages are only available in Northern Ireland – a small province where Northern Bank knows the market very well.
The loans can only be taken out by existing current account customers, who the bank should know and trust.
The risk profile of the product is, in fact, little different from a 90% LTV mortgage.
It will appeal to first-time buyers who may not have a deposit, but do have a steady income and can safely afford the monthly repayments.
In a market where thousands of people are unable to get on the property ladder, products like these have a vital role to play.
It is a local bank fulfilling the lender’s essential social purpose – making credit available to allow people to buy their own homes.
As long as the customers are properly vetted and appropriate safeguards are in place, this is an act of responsibility, not rashness.
Mike Jones, sales director of mortgages at Lloyds Banking Group
A snapshot of today’s market compared to August 2007 tells two very different pictures – and the availability of higher LTVs is just one of the changes.
Halifax has retained a consistent offering at 90% LTV throughout the challenging market of the last few years.
Our appetite in this area of the market was rightly measured throughout this time, as it is for any one type of lending, but we never retreated to a place where we required a deposit larger than 10%.
However, a number of things have changed in the wider market over the same time that has determined the availability of deals for borrowers with a small deposit.
The cost of funding these products is a key factor in their provision.
The amount of capital that lenders are required to hold to offer a rate at 90% LTV is six to eight times more expensive than at 70% LTV.
This makes deals disproportionately more expensive for borrowers with smaller deposits and a key point for consideration.
In addition, we’re in a very different house price environment.
Our view is that UK house prices will end 2011 2% lower than in 2010, a decrease that will be recovered in 2012.
It’s a steady and stable picture across the UK as a whole, although there are significant local variations. There’s certainly not a return to the increase in house prices of 2007 which many considered to provide a buffer to higher LTV lending.
A different set of circumstances apply for each borrower, as they do for each lender. A product that is right for one isn’t always right for another.
Our commitment to this area of the market is to continue to innovate to find new ways of helping people onto the ladder.
No-deposit deals are not the only way to do this.
