It would be easy to think that 100 per cent mortgages are making some sort of return to the market.
Buckinghamshire Building Society’s latest offering is a Family Assist Mortgage available to first-time buyers who are finding it difficult to raise a deposit. They can borrow up to 100 per cent of the purchase price, with parents or grandparents providing the additional security using the equity in their property.
Parental help
The parents or grandparents must have minimum remaining equity of £130,000, and the maximum loan-to-value (LTV) is based on the number of bedrooms in their house.
The Post Office has also launched a Family Link Mortgage for first-time buyers to get a mortgage without a deposit. Instead, borrowers take out a 90 per cent LTV mortgage from the Post Office and then raise the other 10 per cent as a mortgage secured against a close relative’s home.
These follow other more long-standing products.
Barclays is offering a mortgage whereby families must deposit 10 per cent of the purchase price into a Helpful Start Account. Savings will be returned with interest after a three-year term provided mortgage payments are kept up to date.
Aldermore also offers a product where a guarantee will be required from a parent, step parent or grandparent for a mortgage of more than 75 per cent LTV.
The guarantee will be secured by a collateral charge on the guarantors’ residential property, and the amount of the guarantee will be capped at the original agreed amount.
How fast these 100 per cent mortgages grow is dependent on how much advisers are willing to recommend them to their clients.
Dean Mason, owner and director of Masons Financial Planning, says brokers are still nervous about 100 per cent mortgages and are less likely to recommend them to clients.
Mr Mason adds: “They would rather advise the client to save up and come back with a 5 per cent mortgage deposit. Compliance rules all our lives at the moment. It is very much a case of saying, ‘if you don’t need to move, save up, get some cash and when you have got the cash, you can move’.
“Brokers also do not want to be tied to anything that gives ambulance chasers a chance to say you should not have sold customers this type of product. We need to be very careful with that.”
Innovative mortgages
However, Mr Mason says that there is a need for 100 per cent mortgages in the market.
He explains: “[The products are innovative] because they protect the lender. It also benefits the people who do not have wealthy parents or grandparents, but they have equity to help children or the grandchildren.”
Key points
- More lenders are offering 100 per cent LTV mortgages
- Many of them come with parental guarantee
- There is no fear yet of a return to pre-credit crunch days
Carl Shave, director at Just Mortgage Brokers, says: “Lenders are getting more interest, but they do have quite strict guidelines. These mortgages are not going to be things that will work for everyone, but they will work for some.”
