Is the return of 100 per cent mortgages a good thing for the market?
Carl Parker, head of the self-employed division at Just Mortgages
The housing market needs first-time buyers, but first-time buyers are struggling. And the main problem is getting a deposit. The average FTB home in the UK now costs £208,741 and the average deposit is £33,127.
The average FTB is 30, which means they will be saving up for a deposit in their 20s; the average salary of 22 to 29-year-olds is £24,840.
If someone in their 20s put aside £200 every month into a 1.5 per cent interest savings account, it would take more than four years just to save a 5 per cent deposit (£10,437) and almost eight-and-a-half years to save up 10 per cent. To save the average deposit of £33k it would take 13 years. So, if the FTB set a target of two years, they would need to save £430 a month just to get 5 per cent and £861 for a 10 per cent deposit; that’s almost half their monthly take-home pay. With the average rent at £926 you can see the problem – the maths doesn’t work.
So we need a solution. We know FTB incentives work – Help to Buy has helped more than 420,000 first-time buyers get on to the property ladder, while it is estimated the stamp duty freeze has benefited 180,000.
This latest offering from Lloyds – where FTBs can borrow 100 per cent of the price of the property, provided a family member acts as a guarantor – is a solution. It is not the solution for everyone, because it is obviously limited to who it can help, i.e. only those who have family support – and money – behind them. But nevertheless, it is a positive move. The Bank of Mum and Dad is already one of the biggest lenders on the High Street. This new 100 per cent mortgage takes this a step further because it allows parents (or other family members) to help, but benefits them too. The money that they guarantee – equal to 10 per cent of the price of the property – has to sit in a Lloyds savings account for the three-year term on the mortgage. And the rate on that savings account is a market-leading 2.5 per cent.
Some argue bringing 100 per cent mortgages back could take us back to where we were in the run-up to the financial crash. But we are not talking about 125 per cent mortgages, and this 100 per cent mortgage is only available with a guarantor. In fact, it is probably less risky than a more standard 95 per cent mortgage where all the risk is with the FTB. It won’t be the answer for everyone, but it is a good start.
Martin Stewart, founder and director of London Money
I mean seriously, where will this end? We have everything ‘on tick’ now: consumer goods, cars, houses and the latest trend – luxury watches. We need to change. We need to change culture. We need to change our attitude to owning things and we certainly need to change our attitude towards debt. Personally, I feel that starts very simply by accepting that if you can’t afford something then wait until you can or go without.
This disposable, have it now, delete this, expunge that, flick over, scroll left society has helped to create a dangerous element – instant gratification. That is something that we now demand, refuse to compromise upon and, more worryingly, expect, even if we can’t actually afford it.
I am all for a bit of innovation in the mortgage market; goodness knows we need some. But we are not really inventing anything new with these products.
Allowing a parent to park the deposit in a savings account isn’t really advocating a 100 per cent mortgage. No, it is advocating much worse than that – a dismissive attitude towards debt, something that I had thought we left behind in 2007.
Remember when people, businesses, governments even, were all going to deleverage. But in fact all we have done is re-leverage higher.
The analogy I use with a client is that of debt being a treadmill. We’ve all been on one; admittedly some more than others.
We all know what speed we are comfortable with but then imagine an invisible hand pushing up the miles per hour so that you have to run faster and faster. Then it starts to press the incline button and you are having to run faster and faster, but uphill. Yes, that’s debt I’m afraid. It is better to control your debt than for it to control you.
And that starts with borrowing sensibly and saving sensibly. You shouldn’t have one without the other.