100% Loan to Value Mortgages

by Mark Johnston

100% mortgages meant there was no need for buyers to save up a deposit before getting on to the first rung of the property ladder. These mortgages became very popular with first time buyers who struggled to save a deposit.

In June 2007 there were 216 100% mortgages products on the market and 136 products with a loan to value (LTV) ratio of over 100%.

High loan to value (LTV) mortgages were a common sight pre-financial crisis, but lenders started to stop offering them when the prices crashed in 2009.

By May 2011 the 100% mortgage was a thing of the past; lenders revealed that the mortgage market had seen the end of these deals. Lenders were no longer prepared to take a risk on loan to value (LTV) above 95%.

Michael Coogan, director general of the Council of Mortgage Lenders (CML) stated that “lenders were finding ways to be more flexible, but they wanted to ensure first time buyers put down enough of a deposit to show they are taking the mortgage serious. Therefore he believes the 100% mortgage has been consigned to history.

Mike Fitzgerald of EMBA group said he “did not think it was fair to say they would never come back”, he did admit though it was unlikely in the present climate.

The small or no deposit mortgage has been marked as the villain of the property boom, however a 95% to 100% mortgage is not necessarily bad, as long as borrowers realise the big risks involved.

A no deposit does help first time buyers on to the property market, although it does mean that any fall in house prices would put them in to negative equity meaning their mortgage is worth more than the home. This in turn would essentially stop them moving home or selling up.

There are at present approximately four lenders offering 100% mortgages, although all of these deals either require a guarantor or are restricted to specific areas.

Two of these lenders limit their offers to local buyers. The Northern bank only lends to Northern Ireland customers and Tipton and Cosely, a small building society in the west midlands, will only lend on property in the surrounding area.

However the Aldermore bank has just recently launched a 100% mortgage allowing buyers to borrow the full amount of the property’s value with out a deposit proving they have a guarantor such as a parent who is willing to support it. The guarantor does not need to provide any money up front, but if the borrower’s property is reposed they would be liable for any shortfall that the sale brings.

Analysis of these types of mortgages shows that they are only viable when house prices are rising. House prices peaked in August 2007 and have generally declined from then on.

The problem in the past with these deals was that they were offered when the market was at its top and they were very relaxed terms.

Alex Brummer, city editor of the Daily Mail believes “banking has changed, the world has changed, and finance moves much faster now and therefore it is impossible now to go back to that era”.

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