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Long live the 100% mortgage for FTBs

With talk of an increase in repossessions, 100% mortgages and negative equity, how does a broker provide good service without being accused of irresponsibility?

Here are a few things to consider. First, and without passing the buck, brokers can only sell products that have been developed, underwritten and made available by lenders. No matter what some journalists say about irresponsible lending, lenders are not in the high risk business. They are Steady Eddies who complete risk analyses on products before unleashing them. So let’s not be influenced by those outside the industry looking for headlines.

I am 100% (pardon the pun) behind 100% and 100% plus mortgages. As regular readers will know, I’m always banging on about our evolving marketplace and 100% mortgages are part of this. House prices are rocketing upward, deposits cost a limb and first-time buyers will soon be as common as dodos. Anything that helps first-timers must be positive for everyone.

Naturally, brokers and lenders must go through the due process before they get their client to sign on the line. None of us need reminding a home is unlike other commodities in that it is something we must have to survive. It must be placed in the special needs category. Losing your home will have a far greater impact on your life than losing your Sky Plus box and all your other gadgets.

Why do some lenders offer 100% mortgages? Supply and demand. Potential buyers want a home and need a product to achieve this. Lenders supply it.

As far as negative equity is concerned, this is only a problem if somebody wants to move, the same way equity is only paper money until the house is sold. People who take out a 100% mortgage in a flat market are into negative equity from day one. It goes with the territory, it does not sneak up after the deal is done.

If this fact is stated clearly by brokers and buyers are told they may not be able to move for five years because they will not have the equity in the house, there should be no problem. If market forces are going to restrict movement for some years, a five-year fixed rate could help guard against repossession. I for one do not have much time for the ‘irresponsible lending’ brigade. But there are always lessons to be learned, and perhaps we could take a leaf out of our American friends’ book by treating our homes as homes, not investments.

Long live the 100% mortgage and stop knocking lenders who use innovative products to balance supply and demand.

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