Press Article
METRO - 8 September, 2011
The 100% mortgage is back
By Jo Eccles
Since the credit crunch in 2008 and the demise of the 100% mortgage, large cash deposit requirements have become a big obstacle for first time buyers - the majority can't afford to save up for a deposit and thus they can’t get onto the property ladder. As such, last week’s announcement that Aldermore Bank has brought back the 100% mortgage will be welcomed by some. Available to first time buyers and movers over the age of 25 years old, the ‘Family Guarantee Mortgage’ will allow someone buying a property to borrow 100% of the value of the property, without injecting any of their own cash themselves.
For those lucky enough to qualify for the mortgage, naturally there is a catch. A relative of the buyer, who is typically the parent or grandparent, must be able to guarantee any borrowing above 75% by putting their own home up as the collateral, hence its name: The Family Guarantee Mortgage. This allows the guarantor to guarantee the mortgage payments by offering their existing home as collateral, without them needing to dip into their savings and pass on cash to their family member who is buying the property.
The maximum mortgage available under this scheme is £250,000 meaning that it will be great for those buying in the London suburbs and outside of London. Even so, don’t be lead astray by this wonderful sounding offer as the interest rate is high at 6.48% so it might be more worthwhile considering other options, which still provide financial flexibility for first timers. If you can put down a 5% cash deposit with a relative guaranteeing 80% of the mortgage, there are cheaper rates available. Unfortunately, it is also unlikely to open doors for any first time buyers in central London, where most one bedroom flats are priced considerably over £250,000. Another point to note is that the guarantee facility is only valid for 10 years, after which the buyer has sole responsibility for repaying the loan.
Although it might be good news for those house buyers who are eligible for the 100% scheme, it does raise concerns. It was the 100% mortgages offered to buyers pre-credit crunch that were largely blamed for the collapse of the market, as many buyers who took out these mortgages simply couldn't afford to repay them.
However, as long as there are mortgage products aimed at first time buyers who can genuinely afford them, it will do some good towards opening up the market to first time buyers. It would now be good to see some initiatives which help those who are not fortunate enough to have wealthy relatives, but who are still hard working, responsible buyers.