Are No-Deposit Mortgages Making a Comeback?

Many homeowners will be familiar with the 100% mortgage a mortgage that loans you the full price of the property without the need to find a deposit. Its tempting indeed, just as it was when these mortgages were readily available prior to the banking crisis and recession. Of course, lending restrictions became far stricter following the recession. This saw a sharp drop in the types of mortgages available. Indeed, some questioned whether we had seen the last of the 100% mortgage. However, it would appear it is making a comeback albeit with restrictions. The Market Harborough Building Society has created a mortgage that grants a 100% loan to the applicant provided their parents agree to take out a second mortgage on their home. This means their property is put up as security in lieu of the first-time buyer needing to find a deposit. Other similar 100% mortgages are also available Barclays is also offering a 100% mortgage, but under different terms. In this example, the parent must provide a deposit equal to 10% of the property price. This money is put in a savings account that is linked to the mortgage. It must be left in the account for a three-year period to guard against defaults by the mortgage holder. Is this ideal for all borrowers? No, it wont suit everyone. The Market Harborough offer requires there to be ample equity in the parents home, and for the parents to be willing to take out a second mortgage. Furthermore, not everyone will have the luxury of being able to ask their parents for support. As for the offer from Barclays, not everyone will have access to the amount of cash required to meet the 10% deposit amount. There are, however, clear signs that lenders are trying to offer more solutions for more would-be homebuyers. For example, Santander has allowed people to borrow 90% of the cost of the property and to take out a 10% personal loan for the rest. Thus, you would have to make payments on the loan each month as well as paying your mortgage. Arent these all just new versions of the original 100% mortgage? You could argue this. However, there are differences. There is little chance we will see the original 100% mortgage back in place as it was before. Even in the case of the mortgage-and-personal-loan option, affordability criteria are still applied before the loan is granted. The strict criteria put in place by the Mortgage Market Review are still adhered to. However, for some (perhaps for many) the only real option available will be to continue saving in the hope they will eventually have enough to meet the amount needed for a deposit the old-fashioned way. The length of time needed to save will undoubtedly see prices continue to rise for the long term. This in turn makes it feel as though it will take longer still to meet the amount needed to make that all-important deposit a reality.

Published on 4 December 2016

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