Money: Home buyers are back up to the hilt

The 100 per cent mortgage is in the market again, writes Dido Sandler

Fast cars, expensive lunches and outsized bonuses - these icons of the late 1980s have made a comeback. So, too, has the 100 per cent mortgage.

With the new buoyancy of the property market, a raft of providers have entered the 100 per cent-plus mortgage market in the past two years. There are now more than a dozen to choose from. The underlying lending rationale is that in a rising housing market, mortgage providers risk less and have more to gain if a customer should default and they are forced to repossess a property.

Companies had all but withdrawn this product in the dog days of the early 1990s, when a combination of widespread repossessions, negative equity (property value less than the amount of the loan) and a stagnant housing market gave lenders cold feet.

These 100 per cent loans are aimed largely at first-time buyers who cannot raise the usual 5 per cent minimum deposit on their first homes. Lenders include Abbey National, Bank of Ireland Mortgages, Bank of Scotland, Yorkshire building society and telephone-based sellers such as The Mortgage Business and Mortgage Express.

There are also loans specially designed for those in negative or zero equity, from lenders such as Bank of Scotland and Cheltenham & Gloucester. Zero equity is where a property's value has risen back to the original purchase price, but individuals hold no actual equity in the property, and so may find it difficult to finance a move. Mortgage Express, for example, lends up to 130 per cent of the value of the current property under its negative equity scheme.

Ian Darby, marketing director of mortgage brokers John Charcol, says many 95 per cent borrowers fund the 5 per cent deposit from a bank loan or from parents, and do not actually have the money. In this circumstance borrowers might find it easier and cheaper to arrange a reasonably-priced 100 per cent loan rather than slip into secondary debt. Charcol's own 100 per cent loan consists of borrowing 75 per cent from Halifax at 6.23 per cent fixed over two years, with the other 25 per cent as a "second charge" loan at 9.85 per cent from Norwich Union. An attraction of this dual structure is that the borrower does not need to take out a mortgage indemnity guarantee (effectively negative equity insurance).

Some people also take out 100 per cent mortgages to work on and increase the value of the property. But Patrick Bunton, manager at London & Country mortgages, warns that individuals should check beforehand whether the sum they put in will be fully reflected in the increased value of the home.

Mr Bunton is deeply suspicious of 100 per cent mortgages, and believes individuals should only take them as a last resort - if, say, you are starting a family, and can no longer fit in your old one-bed flat. Such loans in the late 1980s overextended some borrowers, leading to mass repossessions of homes and huge debts.

Mr Bunton says that to justify this type of loan, borrowers must stay in the property for about five years to give it time to appreciate, thereby earning the owner some equity.

Robert Clifford, managing director of Nottingham-based mortgage broker MPI, also has reservations about 100 per cent loans. Although interest rates are better than in the 1980s boom, rates still tend to be about 1 per cent above standard variable rates rates. And most charge extortionate levels of Mortgage Interest Guarantee insurance (MIG). On a pounds 50,000 loan, a 100 per cent borrower might have to a pay a MIG of pounds 1,500. For a 95 per cent loan it would be just pounds 700. The MIG is a non-refundable, one- off premium which insures the lender, not the borrower, against negative equity. If the lender repossesses and sells your home, the MIG covers any losses it suffers.

One alternative to 100 per cent mortgages is 95 per cent loans that carry a 5 per cent cashback, from the likes of Abbey National and Bank of Ireland Mortgages. The cashback can be used to repay any borrowed deposit, while the MIG bill is slashed by more than a half.

q Readers can get a free copy of the 'Independent on Sunday's 27-page 'Guide to Mortgages', sponsored by Barclays Mortgages, by telephoning 0800 585691 or by returning the coupon below.

Dido Sandler works for 'Financial Adviser', a specialist publication.

Start your day with The Independent, sign up for daily news emails
Have you tried new the Independent Digital Edition apps?
Finacial products from our partners
Property search
New Energy Secretary, Amber Rudd, wrote to the Big Six suppliers to ask whether prices are reflecting companies’ costs

It’s time to wipe out our energy debt

Companies should start to play fair and pass on reductions to customers

The programme was a look back at the Mad Men-y age of the Sixties and Seventies

Women born in 1950s facing severe financial hardship over pensions could have fates changed by Ros Altmann - should she choose to help

Women born in 1950s facing severe financial hardship over pensions could have fates changed by Ros Altmann - should she choose to help

PPI complaints were down by about a half

Banks face fresh wave of PPI compensation claims after landmark ruling

The PPI scandal has already cost Britain’s banks around £24 billion

Some experts warn that the bond sell-off may continue until the autumn, when the US Federal Reserve is expected to lift interest rates

Is it really that bad in the bond market?

The great sell-off has sparked fears for our pensions as well as bonds. Simon Read asks if you should keep calm or panic
Up and away: rates will rise but your mortgage won't escape its moorings with a long-term fix

Is a 10 year mortgage deal a fix too far?

A cut-price deal for a decade-long home loan - where's the problem? Only, says Simon Read, that circumstances can change and it won't be easy to get out
In a surprise move the Tories have decided against putting a career politician into the job. Instead they’ve handed the responsibility to campaigner Ros Altmann

New pensions minister has massive job on her hands

The Tories have appointed campaigner Ros Altmann to the post

Promises, promises: David Cameron talks to staff at Asda's head office in Leeds today

General Election 2015: How you vote next week could affect your finances

Rival party pledges could shrink your savings or grow your nest egg
Logos for the 'Big Six'; energy companies (top row from left) British Gas, EDF, RWE npower, (bottom row from left) SSE, E.ON and ScottishPower

Winter heating underpayment brings summer pain

One reader’s monthly direct debit charge has been increased by 62 per cent

Almost 15,000 people died last winter through living in cold homes that they couldn’t afford to heat

Social tenants locked into energy tariff for 40 years

Many Londoners who live in social housing estates are not allowed to switch because their landlord has ‘locked’ them in to buying from one supplier

Will your credit card rewards be scrapped following new EU rules on charges?

Providers are unhappy with new EU rules - but ultimately it is customers who will have to foot the bill
There remain more than a million unclaimed Premium Bond prizes worth collectively around £48m

Have you won £1m in the May Premium Bonds draw?

More than £60m was paid out to more than 2 million prizewinners this month

The 0 per cent introductory deals that credit cards offer are one of the most odious tricks

Beware credit card firms’ odious tricks

Why can’t we just have open and honest charges, without all the cross-subsiding?

The pound’s recent strength against the euro could be hit by economic uncertainty under a new government

How planning can make your travel cash go further

With the pound at a high against the euro, it pays to buy now before uncertainty post-election

Put the phone down on the coldcallers who see pension liberation as an opportunity to liberate your pension from you

Pension freedoms: How to deal with cold calls from scammers

Sean O'Grady offers advice on keeping your money safe
Switching to a better bank account is much easier than it used to be

More people are switching current accounts – but what do the figures mean?

Experts disagree about the 7% increase over the past year

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Digital Optimisation Executive - Marketing

    £30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...

    Recruitment Genius: Financial Reporting Manager

    £70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...

    Recruitment Genius: Payments Operations Assistant

    £23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

    Recruitment Genius: Telephone Debt Negotiator

    £13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

    Day In a Page

    Sepp Blatter resignation: The beginning of Fifa's long road to reform?

    Does Blatter's departure mean Fifa will automatically clean up its act?

    Don't bet on it, says Tom Peck
    Charles Kennedy: The baby of the House who grew into a Lib Dem giant

    The baby of the House who grew into a Lib Dem giant

    Charles Kennedy was consistently a man of the centre-left, dedicated to social justice, but was also a champion of liberty and an opponent of the nanny-state, says Baroness Williams
    Syria civil war: The harrowing testament of a five-year-old victim of this endless conflict

    The harrowing testament of a five-year-old victim of Syria's endless civil war

    Sahar Qanbar lost her mother and brother as civilians and government soldiers fought side by side after being surrounded by brutal Islamist fighters. Robert Fisk visited her
    The future of songwriting: How streaming is changing everything we know about making music

    The future of songwriting

    How streaming is changing everything we know about making music
    William Shemin and Henry Johnson: Jewish and black soldiers receive World War I Medal of Honor amid claims of discrimination

    Recognition at long last

    Jewish and black soldiers who fought in WWI finally receive medals after claims of discrimination
    Beating obesity: The new pacemaker which helps over-eaters

    Beating obesity

    The new pacemaker which helps over-eaters
    9 best women's festival waterproofs

    Ready for rain: 9 best women's festival waterproofs

    These are the macs to keep your denim dry and your hair frizz-free(ish)
    Cycling World Hour Record: Nervous Sir Bradley Wiggins ready for pain as he prepares to go distance

    Wiggins worried

    Nervous Sir Bradley ready for pain as he prepares to attempt cycling's World Hour Record
    Liverpool close in on Milner signing

    Liverpool close in on Milner signing

    Reds baulk at Christian Benteke £32.5m release clause
    On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

    On your feet!

    Spending half the day standing 'reduces risk of heart attacks and cancer'
    With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

    The big NHS question

    Why are there so few new GPs when so many want to study medicine?
    Big knickers are back: Thongs ain't what they used to be

    Thongs ain't what they used to be

    Big knickers are back
    Thurston Moore interview

    Thurston Moore interview

    On living in London, Sonic Youth and musical memoirs
    In full bloom

    In full bloom

    Floral print womenswear
    From leading man to Elephant Man, Bradley Cooper is terrific

    From leading man to Elephant Man

    Bradley Cooper is terrific