Building societies have backed revisiting the case for 100% loan-to-value mortgages.
The suggestion is likely to send shivers down the spines of those who bought at the height of the last housing boom and soon found themselves in negative equity and unable to move – or, at worst, handing back the keys.
It has come as part of a report commissioned by the Building Societies Association which looks at alternatives to first-time buyers having to rely on the Bank of Mum and Dad.
The trade body warns that relying on parents is not an option for everybody and cautioned that there is a risk of families “jeopardising their own financial futures”.
Instead, the report suggests revisiting the case for lending up to 100% LTV mortgages “within appropriate parameters”.
The report proposes exploring how technology such as open banking – giving automatic access to live account information – can feed into more accurate predictive underwriting to support this type of lending.
It also suggests tax incentives such as an Inheritance Tax exemption for parents transferring wealth for their child to purchase a home, and Stamp Duty cuts for older home owners to downsize.
Robin Fieth, chief executive of the BSA, said: “Home ownership remains a fundamental ambition for the majority of people.
“Against the challenging backdrop of high prices, a woefully inadequate supply of homes and a growing intergenerational divide, new ideas and strong debate are essential.
“Family help – the so-called Bank of Mum and Dad – is great for those fortunate enough to have this option, but innovations in underwriting could help all potential first-time buyers.”
Analysts were not too keen on the proposals.
Commenting on the report, Tim Bennett, partner at broker Killik & Co, said: “This Christmas, British mortgage lenders may be set to resurrect an old financial services pantomime villain – the 100% home loan. This is a bad idea.
“With house prices stalling, or falling, in real terms across many parts of the country, any zero-deposit buyer risks being plunged immediately into negative equity.
“Worse, they will be leaning into the headwind of rising interest rates.
“The fact that an eligible buyer may have an inheritance coming, or be on a lucrative career, doesn’t magically justify them sinking good money into a bad decision.
“Faced with an uncertain economic backdrop, the prospect of a messy Brexit and an unpredictable political situation, any measure that seeks to stimulate housing demand by encouraging highly-geared buyers into a rocky property market, looks rash at best.
“My advice in festive season 2018? Watch out – the 100% mortgage is behind you.”
https://www.bsa.org.uk/BSA/files/da/da1a7288-7755-43db-9a5d-69687ef84416.pdf
I really don’t think there’s anything wrong with the principle of 100% mortgages if the buyers meet the necessary qualification criteria.
It’s completely wrong and just sensationalism to call them “sub prime” as this refers to the type of borrower not the type of mortgage.
It’s also wrong to suggest that somehow going into negative equity means you have to “hand back your keys”. Again, this is just incorrect as in most cases it just means you’re unable to move and will need to stay put until your equity recovers, which is perfectly acceptable for most people.
Really, it’s exactly the same for people who bought with a 5% deposit and then see prices fall by more than that in a crash, so does that mean we have to ban 95% LTV mortgages too?
Given most young people would much rather buy than rent if it wasn’t for the difficult challenge of saving a significant deposit, I think 100% mortgages have a place in the market.
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Its completely wrong to go back to 100% mortgages. In my opinion (and i know this isnt liked much) if you cant save for a deposit, you shouldnt be buying a property. In most areas a house can be bought for £150,000 – £200,000. If a FTB couple save hard for 2 years they can get £10,000 easily, but people arent prepared to sacrifice those holidays, new cars, spending £5 a day of lunch, every day.
100% mortgages followed by the Northern Rock scheme was part of the problems which dogged the housing market, fuelling house price explosion. I am strongly against this.
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If we’re saying that people need to save before every purchase we should ban credit cards, lease deals etc etc. Using the same principle, we should also ban parents from giving their children a deposit, as it also means they haven’t proven themselves by evidencing their ability to save. The same goes for inheritance. Why is it that people fortunate enough to have wealthy parents are able to buy a property, whilst others can’t? There are countless buyers that couldn’t afford to save a deposit under normal circumstances but get a step up on the ladder denied to others through nothing more than luck.
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Blimey, you’ll be calling for full socialism next.
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My opinion is that people need to be able to prove they can budget and spend their money where it is needed. If a first time buyer couple who live with mum and dad and fritter their income away on luxuries how can a mortgage lender have confidence that they can pay their mortgage.
Everyone can save, i agree that not everyone can save at the same rate and some people do get help from family. But offering 100% mortgages is not the answer, it is a route we dont want to be going down, and a route that then leads to somewhere else. It is only being proposed due to house prices being high and buyers not being able to afford a house that they desire. House prices need to be maintained naturally rather than artificially propped.
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Northern Rock was an issue for 2 reasons. They did not just offer 100% mortgages they offered 125% mortgages!
Secondly when NR collapsed (which was not because mortgages were not paid). Virgin money took them over and they did not want they high LTV properties. So they hiked the interest rates up to over 9 % in a bid to get them off their books they were willing to offer the same borrows remortgages at a lower LTV but given the majority were in negative equity they could not remortgages with Virgin or any other lender!
Despite all this not many borrowers had their homes repossessed the suffered the unfair rate change, waited for the market to increase and remortgaged or sold.
The issue with NR and Virgin was there unfair lending NOT the borrowers.
In essence the lenders changed the goal posts not the borrowers defaulting.
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I also feel a deposit is a sensible precaution of around 5%. This does provide some level of protection to the lending bodies and moreover THOSE INVESTORS putting the funds in to fund the mortgages. In my view there is a big difference between a few thousand pounds going wrong on a credit card. A lease deal like a car which is easily repossessed. I do feel that 10% deposits are hard to achieve within a reasonable time frame for many people. However, of most importance is affordability and how secure the earnings are likely to be. Where someone can demonstrate excellent affordability exceptions might be sensible. If affordability is low then due caution is needed to protect both the lender and morally the borrower. Many of the bad decisions were based on self certification of income where this encouraged poor lending. As always the extremes are expressed on how people see responsible lending and borrowing. I guess this will probably get dislikes but this is just another person having another opinion.
It should also not be forgotten it is a market place that this operating in and the easier it is to buy the higher the prices will rise again cutting out people at the bottom. There is no easy solution.
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I think the issue is that they need to save whilst paying rent, which doesn’t leave much over to save, especially if they have children. Expecting a couple to save £416 per month is unreasonable. Currently my childcare bill is just over £500 per month, and that is before mortgage (which is lower than most rents in my area), car insurance and other bills. I’m not a huge fan of 100% mortgages, however they do have their place. I think they are infinitely better that the H2B on new builds, where most of the ‘deposit’ is wiped out the second they hand the keys over and the new home depreciation kicks in. What we should NEVER go back to however, is the 125% LTV that a friend of mine and her (admittedly, borderline alcoholic gambler of a partner) took out. They were in thousands of pounds of debt three years later when they split up and sold the house. And that was just before the crash when prices were still rising!
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Hardly sub-prime.
I’m sure the hoops borrowers will have to jump through will be the same if not higher.
Long overdue in my opinion.
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As mentioned above these are not sub prime mortgages.
Also nothing wrong with 100% mortgages it’s expensive enough setting up your first home. Let’s help them onto the ladder.
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Absolutely agree. It is nothing to do with Sub-Prime mortgages – granted this was the term used when NR were about.
Sub-Prime mortgages are credit rating related.
I agree with you – bring them back, the current lending criteria will soon get rid of people who can’t afford them etc.
Most FTB issues with regards to getting on the ladder are down to the fact they have not got the massive deposits required to get a mortgage and NOT that they can’t afford the repayments. In fact, most of them pay a damn site more in rent payments than they would the equivalent mortgage!
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Exactly. I pay about £200 less for my mortgage, if not more, than the rental for a similar property.
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As someone who, back in the eighties, had a 100% mortgage which got me onto an otherwise impossible property ladder for me even then because of rent and other commitments, and gave me the chance to buy my first home, I am a firm believer that this should be available to the current generation and could give the property market as a whole the stimulation it so desperately needs.
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Even 95-98% would help!
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