The Return of the 100% Mortgage
Turn the clock back 4 or 5 years and we probably all know someone who had been able to realise their dream of purchasing a home by buying a house using a 100% mortgage.
Indeed one of my friends went one better than that and purchased using a 120% mortgage! That particular product.
offered by Northern Rock, consisted of a 100% loan to value mortgage coupled with a secured loan for 20% of the value of the property, to be used to complete necessary improvements.
At the time it seemed that everyone, lenders included, saw the property market as a one way, upwards bet.
How things have changed since the credit crunch.
In the last few years many people on good incomes, with clean credit records have struggled to even get a 75% loan to value mortgage.
But early this month, accompanied by much publicity, the 100% mortgage product returned.
Aldermore, a relatively new player in the mortgage market, launched a 100% mortgage product earlier this month aimed at first time buyers.
But, before you get too excited, I should point out that they're not taking too many risks with this offer.
The product, called the Family Guarantee mortgage, doesn't come cheap.
The rate is fixed at 6.
48% for 3 years.
Although it does allow a buyer to purchase without using a cash deposit, any borrowings above 75% must be guaranteed by a parent or other close relative in the form of a charge lodged against their own property.
Despite the fanfare created by this announcement, the Aldermore product is not the only 100% mortgage currently available.
There are 3 other lenders offering a 100% mortgage including The Marsden Building Society's Family Assist Offset Deposit mortgage, which requires the guarantor family member to hold at least 20% of the value of the property in a savings account with the society.
With an interest rate of only 3.
99% this represents a very good deal for the borrower.
So what, if anything, does all this mean to the property investor who needs buy to let finance? Obviously these products will have no direct effect on buy to let investors but they do provide further evidence that lenders are now becoming more confident about lending again and are making a real effort to create innovative products that help people to buy.
They are a sign that lenders do actually want to start lending again in decent volumes, in the right circumstances.
I suspect that, in the coming months, we might start to see similar innovation in the buy to let market with lenders showing greater flexibility in their lending terns in order to fund good deals.
For example, we may well see lenders start to advance higher loan to values (may be up to 90%) where a buyer is able to secure a property with a very high rental yield.
Such developments would certainly please the 75% of landlords who have expressed a desire to expand their portfolio over the next 12 months.
Indeed one of my friends went one better than that and purchased using a 120% mortgage! That particular product.
offered by Northern Rock, consisted of a 100% loan to value mortgage coupled with a secured loan for 20% of the value of the property, to be used to complete necessary improvements.
At the time it seemed that everyone, lenders included, saw the property market as a one way, upwards bet.
How things have changed since the credit crunch.
In the last few years many people on good incomes, with clean credit records have struggled to even get a 75% loan to value mortgage.
But early this month, accompanied by much publicity, the 100% mortgage product returned.
Aldermore, a relatively new player in the mortgage market, launched a 100% mortgage product earlier this month aimed at first time buyers.
But, before you get too excited, I should point out that they're not taking too many risks with this offer.
The product, called the Family Guarantee mortgage, doesn't come cheap.
The rate is fixed at 6.
48% for 3 years.
Although it does allow a buyer to purchase without using a cash deposit, any borrowings above 75% must be guaranteed by a parent or other close relative in the form of a charge lodged against their own property.
Despite the fanfare created by this announcement, the Aldermore product is not the only 100% mortgage currently available.
There are 3 other lenders offering a 100% mortgage including The Marsden Building Society's Family Assist Offset Deposit mortgage, which requires the guarantor family member to hold at least 20% of the value of the property in a savings account with the society.
With an interest rate of only 3.
99% this represents a very good deal for the borrower.
So what, if anything, does all this mean to the property investor who needs buy to let finance? Obviously these products will have no direct effect on buy to let investors but they do provide further evidence that lenders are now becoming more confident about lending again and are making a real effort to create innovative products that help people to buy.
They are a sign that lenders do actually want to start lending again in decent volumes, in the right circumstances.
I suspect that, in the coming months, we might start to see similar innovation in the buy to let market with lenders showing greater flexibility in their lending terns in order to fund good deals.
For example, we may well see lenders start to advance higher loan to values (may be up to 90%) where a buyer is able to secure a property with a very high rental yield.
Such developments would certainly please the 75% of landlords who have expressed a desire to expand their portfolio over the next 12 months.
Source...