Are 100% Mortgages Gone For Good?

100% mortgages were a type of mortgage product very popular with first time buyers. They enabled you to borrow the full value of a property in a mortgage loan. In other words, if you were purchasing a property for 150,000 with a 100% mortgage you would not need to find a deposit. The mortgage lender would provide you with a mortgage for the full 150,000 amount.

These no deposit mortgages were withdrawn by UK mortgage lenders towards the end of 2008, as the “credit-crunch” tightened its grip on the UK’s financial sector. First one lender, then the next pulled their 100 percent mortgage products over a period of just a few weeks.

It will not come as a surprise that no deposit mortgages were very popular for first time buyers. The rapidly escalating house prices during the period 2000 to 2007 meant that saving a significant deposit became harder and harder, particularly with escalating student debt. Therefore, no deposit mortgages made home ownership possible for people who could afford a mortgage, but who were not able to save a significant deposit. Now these types of mortgages have been discontinued in the UK, the number of first time buyer purchases has dropped significantly. First time buyers need a deposit of at least 10% now, and even with a chunky deposit, lenders have severely tightened lending criteria. It has been reported that more than 50% of the mortgages approved between 2003-06 would not be approved under current lending conditions; a worrying fact.

Looking back, with the benefit and wisdom of hindsight, it is easy to criticise this type of high loan to value mortgage and flag them up as risky products offered irresponsibly and short shortsightedly by UK mortgage lenders. But no deposit mortgages will almost certainly have contributed to the housing boom which occurred between 2000 to 2007 which very many people benefited from. As mentioned above, many homeowners would not have been homeowners over the last 10 years had it not been for this type of mortgage. The sudden rapid withdrawal of high loan to value mortgage products will have in itself acted as a significant factor in stagnating the housing market by reducing the number of first time buyers, I suspect.

So will no deposit mortgages make a return in the future? It is not likely that they will return in the short to medium term, and there has even been mutterings from MP’s hinting that they should be banned. The UK mortgage market on a return to strength is likely to want to attract the all important first time buyer business again, and will innovate products in order to do so. This may perhaps be in the form of a no deposit mortgage where a parental property charge is taken as additional security, or a 90% mortgage with a 10% unsecured equity loan. It will be interesting to see what happens in the future when lenders regain an appetite to lend.

So in conclusion, no deposit mortgages seemed a safe bet for borrowers and lenders in a rising property market. But, they were always going to lead to problems if the property market turned. Are 100% mortgages intrinsically bad? No – I don’t believe so. Are they risky? Of course. Greater equity has always meant lower risk for lender and borrower. However, if we just look at the big picture, I am sure the number of people that have benefited from no deposit mortgages over the last 10 years by far outweighs the number that have suffered.

But for now, and who knows maybe forever – RIP 100% mortgages.

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