100% Mortgages Return: Homebuyers to Get No-Deposit Deals
In a move that is set to revolutionise the UK mortgage market, April Mortgages is launching a 100% mortgage deal that requires no deposit from borrowers. The new mortgage product, which will be available from tomorrow, is one of the first deals of its kind since the financial crisis. According to a report by The Times, April Mortgages’ deal will require borrowers to fix their interest rate for 10 or 15 years, starting at 5.99%.
The mortgage will be available to first-time buyers and house movers with a household income of at least £24,000. April Mortgages, a Dutch-owned company, believes that fixing the rate for a decade or more will reduce the risk of negative equity, where the value of a property falls to less than the loan taken out against it. As The Times reports, mortgages that did not require a deposit were commonplace before the financial crisis, but largely disappeared after 2008.
The Financial Conduct Authority (FCA) revealed that the share of new mortgages lent to borrowers with less than a 5% deposit was 6.59% in the third quarter of 2007, but had fallen to 0.31% in the final three months of 2022. April Mortgages’ new deal has no restrictions on who can apply, unlike some previous no-deposit mortgage products that required parents to put money into a savings account as collateral or only allowed first-time buyers who could demonstrate a history of paying rent.
According to The Times, two years ago, Skipton Building Society introduced a mortgage for those with less than a 5% deposit who could prove a history of rent payments comparable to mortgage repayments for up to two years. The building society said it had had £240 million in applications since it released the mortgage in May 2022. The return of 100% mortgages has divided experts, with some seeing them as a way for borrowers without help from the Bank of Mum and Dad to get on the ladder.
Nick Mendes from the mortgage broker John Charcol was quoted in The Times saying: "This offers a much-needed alternative for financially responsible renters who have consistently managed their payments but have been locked out of the housing market." However, James Daley, of the consumer group Fairer Finance, expressed concerns, stating: "I understand people are impatient to get on the property ladder and rising prices have kept it out of reach for many. But I am not convinced that the answer is to lend even more money to people and to waive the need for a deposit."
As reported by The Times, an estimated 900,000 people were in negative equity in April 2009 after the financial crisis, according to the Council of Mortgage Lenders. The interest rates on April Mortgages’ loans are higher than a typical two or five-year fixed rate for someone who has a 5% deposit. However, as homeowners pay off their loans, or if their property increases in value, April will automatically switch them to a lower LTV band, with lower rates.
The Treasury has been encouraging banks to be more flexible with lending rules, with almost all of the leading high street lenders reducing their stress-testing rates over the past two months. Emad Aladhal from the FCA was quoted in The Times saying: "Our aim is a mortgage market that works better for all potential borrowers who can afford to repay — including those who currently find it less accessible than they should, saddling them with higher rents and less security."
The FCA and other financial experts will be keeping a close eye on the impact of these new mortgage products on the market. As James Daley noted, "We need to deal with the fundamentals in the housing market. That means building more houses. Lending people more and more money just builds more risk into our economy — and it feels like we are already forgetting the lessons from the financial crisis."
In conclusion, April Mortgages’ new 100% mortgage deal marks a significant shift in the UK mortgage market. As reported by The Times, this move is set to benefit first-time buyers and house movers, but experts remain divided on the implications of such a deal. With the housing market continuing to evolve, it remains to be seen how this new mortgage product will perform in the long term.
Source: https://www.thetimes.com/business-money/money/article/100-mortgage-no-deposit-uk-news-rates-ljsd8mdw9
