One hundred per cent LTV loans have still, understandably, rather a bad reputation in the market. Indeed, loans such as Northern Rock’s notorious 125 per cent ‘Together’ mortgage will likely be held up as a prime example of How Not To Do It for the foreseeable future.
While true 100 per cent mortgages have not yet returned, the market has a few loans that get pretty close.
The nearest yet came last week from Barclays, which announced it was scrapping the need for first-time buyers to provide a deposit for its Family Springboard mortgage. Previously, the lender had required a 5 per cent deposit plus a 10 per cent contribution from a relative or guardian. Now it asks for just the 10 per cent part, which is paid back in three years with interest.
Strictly speaking, these are not no-deposit loans because they still require cash from relatives. However, from a first-time buyer’s perspective they are true-blue 100 per cent loans.
Clearly the argument against this type of lending focuses on the risk. Lenders are still wary of borrowers who have a lower emotional investment in their property as a result of having less cash invested.
Then there is the greater risk of negative equity if house prices fall.
The move by Barclays has provoked an understandable backlash from some. Seasoned intermediaries have seen first-hand how 100 per cent mortgages can fall over, and they want to protect their clients from experiencing this again.
The story generally received a kicking from the national press too, for the same reasons.
But the need for 100 per cent LTV mortgages is growing, and the risks are shrinking.
While ‘100 per cent LTV’ has a whiff of the financial crash about it, we have not reverted to the bad old days. Affordability requirements post-MMR have kept a lid on risky lending.
One could argue Barclays and others have taken a sensible route in their attempts to offer 100 per cent loans. The market will be monitoring their level of success. Should things shift in this direction, a huge barrier may have been removed for many would-be first-time buyers.