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Government urged to guarantee 100% LTV mortgages in Budget – analysis

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  • 20/11/2017
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Government urged to guarantee 100% LTV mortgages in Budget – analysis
First-time buyers could be about to receive a stamp duty cut in the Autumn Budget, but a return to 100% loan to value (LTV) mortgages could be a more effective way of helping young people into ownership, according to some critics.

Saving a deposit is invariably cited at the biggest barrier for young people who want to buy a home.

As long as a customer can afford repayments, offering a mortgage for 100% of the mortgage to borrowers could remove this obstacle.

After all, unsecured lending doesn’t require a deposit, so why should home loans?

Jonathan Barratt, private client assistant at tax and advisory practice at Blick Rothenberg, is in favour of 100% LTV loans and thinks the chancellor should encourage this initiative in the Budget.

He said: “In order to avoid the mistakes of the 2008 credit crisis, providers are now incredibly stringent with mortgages meaning young people and first-time buyers often need to save for the huge upfront cost of the deposit.

“Instead of giving money away upfront, which the government can’t afford, could there not be a system in place where the government acts as some form of guarantor on the mortgages for first time buyers so the mortgages can increase to 100% of property value again?

“This would negate the necessity of the government to immediately find funds.

“It would also mean that first-time buyers only need to cover the legal fees and Stamp Duty Land Tax (SDLT) if applicable, enabling them to jump from renting to owning, where a mortgage could potentially be less than the monthly rental costs.”

 

Solve a growing social divide

A return to 100% LTV mortgages could also remove a bias towards first-time buyers from richer families.

Around two out of three first-time buyers under the age of 35 use the ‘bank of mum and dad’ or other forms of family help to get on to the ladder, according to research from Legal & General.

Ray Boulger from broker John Charcol is also in favour of a return to higher LTV mortgages.

He said: “We do need to find a way that will allow borrowers to get higher percentage mortgages.

“If we don’t do that there will be a growing social divide – if our parents don’t own a property, it’s much more difficult for you to own a property.”

He added: “If someone can afford the mortgage but is struggling to afford the deposit… The obvious way to address it is bringing back higher LTV mortgages.”

The high amount of capital lenders need to support mortgages above 90% LTV is a major road block, according to Boulger.

The chancellor could address this in the Budget to clear the way for higher LTV lending.

Boulger added: “Lenders are reluctant to stick their head above the parapet and if they do, and are the only ones, they will get a 100% of the business.”

 

100% mortgages not a solution

But not everyone thinks zero deposit mortgages are the answer for first-time buyers.

Richard Bousfield of The Surrey Mortgage Broker said 100% mortgages were a relatively small part of his business before the crisis and it wouldn’t make much of a difference if they were to return.

He told Mortgage Solutions: “My opinion is that [the problem] is supply and demand.”

The South East based broker is keen to hear Philip Hammond give more details about the 300,000 new homes a year the Government plans to build, including the location and type of homes.

David Hollingworth of London & Country Mortgages also believes that higher LTV mortgages would provide some help, but are not a solution for all.

He said: “Of course, pulling a deposit together for first time buyers is a key challenge but the other big challenge is affordability.

“If you remove the need for a deposit through provision of a 100% mortgage the FTB will still need to be able to demonstrate adequate affordability to cover the borrowing amount.

“As house prices have risen, the size of deposit required has increased in order to bridge the gap between what they can borrow and the purchase price.

He added: “100% LTV mortgages would not solve that issue and many would still need to find funds from savings or Bank of Mum and Dad.”

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