As rising house prices means more first-time buyers are struggling to raise a deposit, there has been much debate about whether bringing back 100 per cent mortgages could help.
Borrowers are having to set more and more aside to raise a sufficient deposit, raising questions about the need for innovation in the industry. But 100 per cent mortgages still have a major stigma attached to them. The products were pulled after the financial crisis, as thousands of homeowners found themselves in negative equity.
Ten years on, record-low interest rates and rising house price prices arguably make them a viable option once more.
Society of Mortgage Professionals operations manager Vishal Pandya says: “Property prices are showing consistent, steady growth and this could provide a secure platform for the gradual re-introduction of 100 per cent mortgages in some shape or form.”
But others are concerned that lenders could repeat mistakes made in the past.
Association of Mortgage Intermediaries chief executive Robert Sinclair says: “It is important that we remember what negative equity feels like. There are still mortgage prisoners in parts of the country whose house value is less than the 2007 price peak. We should be trying to avoid adding to these numbers.”
Sinclair says that, with signs property values in London may have peaked, lenders should be exercising care.
Others argue that 100 per cent mortgages have never really completely disappeared though. Often the products have appeared under another guise instead.
One recent example is Barclays’ family springboard deal. First-timers can buy with no deposit if their family provides 10 per cent of the property’s price as security. These products can help first-time buyers while mitigating some of the risk of high loan-to-value lending.
But the danger comes if the trend reverses and homeowners find themselves in negative equity. Prices are already slowing the London and the south east. Pandya says it is vital that safeguards are put in place in to protect borrowers if these products do return.
He adds: “Most lenders would, I imagine, insist on some form of collateral anyway. They will not want, and nor will the regulator allow them, to offer the same sort of deals they did before the financial crisis.”
Yet, while raising a deposit is a major hurdle for first-time buyers, experts say there is a still a degree of stigma about 100 per cent loan-to-value products.
London and Country associate director David Hollingworth says: “It would be a brave lender that re-entered this part of the market. There has to be serious questions asked about how many borrowers would be aided by the return of 100 per cent mortgages.”
There are also other considerations to take into account, such as how the economy and property market will hold up as the UK negotiates its departure of the European Union.
Hollingworth adds: “I don’t think lenders will view a 100 per cent mortgage launch as realistic at the moment. The outlook for the economy and housing market post-Brexit is so uncertain. And perhaps that is the right approach.”
Pandya says: “If 100 per cent mortgages are on their way back there is no doubt they would have wide appeal, but we should treat them with great caution.”