Brokers predict the emergence of more 100 per cent LTV guarantor mortgages following Barclays’ decision to offer a loan where borrowers do not need to stump up a deposit.
Earlier this week Barclays dropped its requirement for borrowers to provide a 5 per cent deposit on its Springboard mortgage, which is fixed at 2.99 per cent for three years.
A family member must contribute 10 per cent of the purchase price, although they get this back after three years with interest.
The news caused a mixed reaction in the national press with some declaring it a lifeline for first-time buyers, while others claimed it was a return to risky lending.
Brokers were also split on the issue. A Mortgage Strategy Twitter poll showed 50 per cent of readers were against a return to 100 per cent LTV lending, with 43 per cent in favour. Seven per cent were undecided.
However, John Charcol senior technical director Ray Boulger defended Barclays decision to drop its deposit requirements.
He says: “I think some of the negative comments I have seen on this comment are missing the point. From Barclays’ perspective it is a 90 per cent mortgage. The risk that Barclays takes on this is less than on a 95 per cent mortgage.
“And if you know your parents’ money is at risk then you are probably going to make even more effort to keep up your repayments than you would otherwise.
“I can see absolutely no reason why, providing the pricing accurately reflects the risk and providing the affordability stacks up, we shouldn’t go back to 100 per cent mortgages.”
Following the financial crisis the number of 100 per cent LTV loans fell dramatically.
In August 2007 there were 238 of these loans on the market, according to Moneyfacts.co.uk. However, within 12 months this had fallen to just 14.
Now there are eight 100 per cent LTV loans, although all of them either require a guarantee from a family member or they are shared ownership loans.
Experts say “pure” 100 per cent LTV loans are some way off, but add other lenders could emulate Barclays by launching no deposit loans that require a guarantor.
London & Country associate director of communications David Hollingworth says: “I think we are quite along way from there being lenders considering true 100 per cent LTV loans. It doesn’t feel right at the moment I think. You can see by the mixed reaction that the Springboard deal has received.”
He adds: “Others may consider whether they develop something similar [to Barclays]. The rate of the Barclays deal is appealing. It is still lower than you can get on a standard 95 per cent deal. Obviously, there is a much bigger range of deals now at 95 per cent. There is clearly some increased desire to lend at that end of the market.”
Coreco director Andrew Montlake says: “I think the way Barclays has done [100 per cent LTV] is a good way of doing it. But as for pure 100 per cent mortgages, I think they will remain few and far between for the foreseeable future – and probably rightly so. I like it when people have skin in the game and I think most lenders do as well.
“When a big lender moves like this a lot of other people watch and see what happens and a lot will depend on the demand for the product. If it is there then no doubt you will see other lenders dipping their toes into the market.”