Buckinghamshire Building Society has launched a 100% loan-to-value (LTV) guarantor mortgage to allow borrowers struggling to save for a property to use equity built up in their parents’ home.
The Barclays Family Springboard mortgage offers borrowers a 95% LTV mortgage if a member deposits 10% of the purchase price in a linked savings account.
Aldermore goes one step further allowing borrowers a 100% LTV mortgage backed up by a charge on a family member’s home.
At the time of the financial crisis when lenders retreated to the safety of 80% LTV mortgages it was inconceivable that lenders would ever offer 100% LTV again. But gradually they have begun to climb the LTV ladder with the Bucks and Aldermore reaching for the topmost rung.
Both have taken the comfort charge route to protect their risk, but do these products signify a warmer attitude to 100% LTV than has been seen in the last seven years?
If affordability assessments are as robust as we are being led to believe then borrowers are less likely to end up in a repossession position putting the lender at risk of not realising the full value of the home. House prices are stable and gradually rising with the Bank of England poised in the background with a bag of tools to stop the market overheating. Against this backdrop is it likely we will see a lender make the move to offer 100% LTV without taking a charge on someone else’s home?
This week our panel of experts consider whether the market will ever see the return of the pure 100% LTV mortgage.
Jill Carpenter, marketing manager, Buckinghamshire Building Society, puts forward her society’s view on why it thinks guarantor-style 100% LTV is the only appropriate way to offer this type of mortgage.
Ian Balfour, chief executive of Solent Mortgage Services, looks at the evolution of 100% LTV mortgage products and their relevance in today’s housing market.
Dean Mason, practice principal at Masons Financial Planning, thinks 100% LTV mortgages no longer appeal to the prudent younger generation looking to buy their first home.
We don’t believe that there will be a return to 100% LTV mortgages in a general sense, as both lenders and borrowers are much more aware of the inherent risks involved. The way our guarantor mortgages work is that the borrowers’ parents use the equity of their own property in lieu of some or all of a deposit from the borrower.
We take a charge on the parents’ property but the borrower must be able to afford the repayments in their own right. The guarantors will only be liable for any shortfall in the event of the borrower’s property being repossessed, so this is a less risky option for them.
Due to the high property prices in our local area many younger people including first-time buyers have difficulty in saving the whole of the deposit required but actually will not have difficulty in meeting the repayments. We think that introducing this guarantor option will make it easier for younger borrowers to make that first move onto the property ladder without facing the higher rates or fees usual for higher LTV products due to higher lending charges.
We operate an individual approach to lending with affordability being the key which can be what many borrowers need who don’t fit with the tighter criteria required for some other schemes.
No, I don’t think this signifies a return to pure 100% LTV mortgages. This is more of an evolution. Clearly higher LTVs are coming back to the market because clients are struggling to find large deposits so we need solutions to help young people and families onto the property ladder rather than just being able to rent and not save.
With prices continuing to go up, the necessary deposit for home ownership is becoming a barrier to entry. This is still a supply and demand market and lenders are reflecting the needs of that market. Obviously, there are higher rates to reflect the greater risk but as long as affordability checks are robust, the return of high LTV lending should not be seen as an issue.
Some lenders, like the Family Building Society are trying to think imaginatively by taking in money deposited by family members as savings to help first-time buyers borrow less at a better rate. I believe we are still a nation which wants to own and have greater control of the costs of housing. Rental prices are only going to increase and therefore good fixed rates offer better protection from rising costs than being a tenant and you have security of ownership.
What we have to do is to encourage home ownership by making customers aware of the ways in which they can get on the housing ladder. At the moment too many are discouraged because they think they need larger and larger deposits. A good broker is able to demonstrate where a high LTV mortgage makes more sense than renting.
I’m cautiously optimistic about the Buckinghamshire’s move but as always the devil is in the detail and how the guarantor is assessed. Is this really so different from the Woolwich springboard and Aldermore’s 100% guarantor mortgage, both of which appeared (with limited take up) a couple of years back.
I’ve never been a big fan of 100% mortgages as I believe you should be able to save a minimum of 5% if you want to take on the huge commitment of a mortgage, although in London that could easily be £25k or more which isn’t easy with the cost of living in the capital.
In many cases in my recent experience the ‘bank of mum and dad’ are chipping in so the need for 100% mortgages or even to save is negated.
The current generation of first-time buyers have grown up in a climate of austerity and unlike the generation before them are very aware of the gravity of their commitment, so 100% mortgages don’t always appeal either.
It would be interesting to see how the Buckinghamshire underwrite this new product compared to their usual processes as lenders offering Help to buy 2 95% mortgages are notoriously tougher on these clients than those with 10% or more deposit.