Intermediary specialists back 100% mortgages

Michael Lloyd

October 31, 2018

Two mortgage professionals have called for the reintroduction of 100% loan-to-value mortgages.

David Copland, (pictured) director of mortgage services at TMA, said 100% mortgages would be appropriate for the most prime borrowers – especially those who have been paying rent on time for a couple of years.

Meanwhile Ray Boulger, senior technical manager of John Charcol, agreed that they would be appropriate providing lenders price and underwrite appropriately.

Copland said: “What about the people that don’t have the Bank of Mum and Dad? I think most people want to get onto the housing ladder and would rather own than rent.

“I think we have to get away from lenders just underwriting a property. They have enough sophisticated tools now to underwrite the people as well.

“It’s a risk if you try and mitigate. I’m not talking about the Northern Rock days going back to 130% but a 100% mortgage for somebody who has two years of clearly paying rent that’s much higher than the mortgage payment even if you stress test 8%.

“The criteria might be a little bit tighter – you would have to find reputable landlords and mitigate that or show 24 months’ worth of bank statements to prove the borrower has the ability to.

“I just feel we’re getting nowhere at the moment and it’s becoming very difficult for first-time buyers to get on the housing ladder.”

Boulger said: “In principle I’m in favour of 100% mortgages and recognise they are risky to lenders so they need good pricing and quality underwriting.

“Affordability and pricing are key. Why should you discriminate against someone who can afford a deposit?

“They should be available provided the borrower demonstrates affordability but the lender would have to a higher price for that risk and then it’s up to the borrower.”

Boulger said he likes Barclays’ ‘springboard’ mortgage, where a family member has to put 10% for a deposit over three years and has control over that money.

He also cited Lloyds TSB’s ‘local lend a hand’ scheme from 2011 where the lender partnered with local authorities whom acted as guarantors to help first-time buyers onto the property ladder with a lower deposit.

Both parties benefited, with the borrower purchasing their first home and the local authority getting someone off its housing list and earning interest on its investment.

Boulger added: “It would be worthwhile for lenders and local authorities to explore whether a similar scheme could happen where they offer guarantee or provide the deposit. That might be another way of providing the 100% mortgage, stepping in where a family does.

“Although the cost of an 85% or 90% mortgage has fallen over the last year, you would expect to have to pay significantly more to get a 100% mortgage.

“An alternative could be borrowing 80%, 85% from a first charge lender and then getting a second charge loan from a second charge lender to prop the rest up. There’s an opportunity there.

“It’s a mistake to compare what might be a 100% today with what we had in 2007. There’s certainly a demand for it and the challenge is for the market to come up with a solution.”

Dilpreet Bhagrath, product liaison at online broker Trussle, welcomed the initiative of a 100% mortgage for those struggling to save a deposit but said lenders would need to make sure they protect customers from negative equity.

She said: “Securing a 100% mortgage enables those renting to get on the property ladder and use those funds towards building equity in their own property instead of throwing money away to rent.

“While more choice on the market will help more people reach home ownership, the 100% mortgage isn’t for everyone. Zero deposit deals put borrowers at greater risk of negative equity.

“Lenders need the right measures in place to protect customers from negative equity and also ensure they’re able to remortgage further down the line. It’s not just about helping people onto the property ladder, but also ensuring they can stay there too.”

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