Have We Seen The End Of 100% Mortgages?
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100% mortgages were a type of mortgage product where the mortgage lender provided a mortgage to cover the full value of the property. You did not need to put down any deposit at all. If you were buying a property for 120,000 your new mortgage would be for the full 120,000
This type of mortgage disappeared from the UK mortgage market towards the end of 2008, as the 'credit-crunch' crunched. It happened very quickly, with first one mortgage lender and then the next withdrawing their 100% mortgage products from availability to new borrowers over a period of literally just 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.
With hindsight, it is easy to criticise no deposit mortgages, and they have certainly had their critics. But for all the risks inherent with a 100% mortgage, the fact remains that they had a positive effect for many first time buyers who would otherwise have been unable to get onto the property ladder. This in-flow of property buyers certainly contributed in no small amount to the rapidly increasing house prices we saw between 2000-07, and many people benefited from this. The sudden withdrawal of no deposit mortgages will almost certainly in itself have dealt a blow to the housing market and has likely been one of the single most significant contributors leading to the reduced flow of first time buyers and housing market stagnation.
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.
Article Source: Articlelogy.com
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