Guarantee is irrelevant for pricing of 100% LTV deal, says Aldermore

CHARLES HARESNAPE – HIGHER CAPITAL IS NEEDED

Aldermore has defended the rate of the 100% LTV mortgage it launched last week.

The lender’s three-year fix at 6.48% available up to 100% LTV requires the loan amount above 75% LTV to be secured on a parent or grandparent’s property.

Many brokers claim the rate is too high because the guarantee on the second property means Aldermore is only taking on the risk of a 75% LTV deal rather than a 100% LTV one.

But Charles Haresnape, managing director for residential mortgages at Aldermore, says the guarantee cannot be taken into account when pricing the product.

He says: “The guarantee gives us extra security on the overall risk of the product, but when it comes to pricing, we have to look at the LTV we are lending which is 100%.

“Any mortgage above 80% LTV requires higher capital from the lender, which in this case cannot be offset by the parental guarantee so high LTV deals have to be priced accordingly.”

David Sheppard, managing director of Perception Finance, argues that the mortgage is not true 100% LTV lending because he says it effectively takes a second charge loan on another property. He adds: “I do not think there will be a huge take-up of this product, partly because of the high rate. But it is good to see Aldermore

bringing innovation to the first-time buyer market.”

And David Hollingworth, mortgage specialist at London & Country, says: “This product opens up the market to those struggling to save for a deposit. It could put borrowers at risk of negative equity if house prices continue to slide, but it would be less of an issue if they were planning to stay in the property for a long time.”