The Return of the 100% Mortgage

By Tom Caterer

Partner

17 May 2023

Article Insights

For many years, the UK economy has been known for its peaks and troughs.  The cyclical nature of the UK’s economy is closely linked to the UK property market.

Home loans where the borrower/buyer does not have to put down a deposit (which is the normal procedure with property purchases in the UK) used to be fairly common, but that was axed in the wake of the 2008 financial crisis.  Many of us will remember the banking crisis in 2008, where prospective property buyers could obtain 100% mortgages relatively easily; many will remember lenders such as Northern Rock offering these products.

Given the unpredictable nature of the UK economy, property market prices subsequently tumbled leaving many individuals trapped in ‘negative equity’ where the monies owed on a mortgage exceeds the property’s value.

Following this, the regulators bought in stringent new affordability, which have been followed ever since.

However, one of the mainstream mortgage lenders on the market, namely Skipton Building Society, is getting ready to launch a mortgage product targeting those trapped in rental cycles and those who do not have access to the “bank of Mum and Dad”.  Ultimately, the product is aimed at those individuals who are unable to save up enough money for the usual deposit.

Skipton Building Society appear to be the first mainstream lender to emerge on the market offering these new products and it is believed that these products will be limited to maximum amount of £600,000 (and will not be available on new build properties).

There are some other offerings for 100% mortgages on the market at present, but they are very rare and these mortgage products currently rely on guarantees from third parties, such as family members.  Skipton will instead look at the applicant’s rental record to evidence they can afford the necessary repayments.  It is expected that an applicant will need to prove between 12 and 18 months of consecutive rental payments, in order to qualify for the 100% mortgage loan.

The general consensus from Mortgage Brokers is that a reversion to this product may stimulate the market and many experts believe that this time around “things will be different” due to the affordability safeguards put in place by the financial regulators.

Some experts are critical of the timing of the 100% mortgage, given the uncertainty around the outlook for housing markets with some economists predicting a fall of up to 7% in UK house prices over the next 12 months.

Nevertheless, stimulus in the property market has always been one of the tactics employed by the current Government since it has been in power.

Many experts suggest that a large number of regions in the UK could benefit from the return of the 100% mortgage for lower capital value markets, especially in the North of England. However, the prediction is that access to homeownership in the South of England may still remain a sizable challenge.

The jury is out as to whether or not the return to the 100% market will be a success, however, with high house prices and private rents soaring, some incentive is certainly required.  Recently published research shows that first time buyers are typically paying approximately £200.00 per month more on their mortgage payments than they were12 months ago, due to a combination of higher interest rates and record asking prices for properties.

Ultimately, it remains to be seen if these financial products will stimulate the economy and be viable however, the re-emergence of 100% mortgage is certainly something to note.

If you are thinking of buying or selling a property in the near future, please do not hesitate to contact our large and experienced Residential Conveyancing team across our three offices: St Albans, Harpenden and Luton.

Disclaimer: General Information Provided Only
Please note that the contents of this article are intended solely for general information purposes and should not be considered as legal advice. We cannot be held responsible for any loss resulting from actions or inactions taken based on this article.