Money: Home buyers are back up to the hilt
The 100 per cent mortgage is in the market again, writes Dido Sandler
Sunday 16 November 1997
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Companies had all but withdrawn this product in the dog days of the early 1990s, when a combination of widespread repossessions, negative equity (property value less than the amount of the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.
The magicians using online collaboration to push boundaries
Jennifer Lawrence attacks mass media again over body image
- 1 America's 'virgin births'? One in 200 mothers 'became pregnant without having sex'
- 2 Sun will 'flip upside down' within weeks, says Nasa
- 4 Christmas comes early: Justin Bieber announces he's 'retiring from music'
- 5 Children evacuated from swimming pool after prosthetic leg mistaken for paedophile
Exclusive: Young people ‘want UK to stay in Europe’: Four in 10 adults aged 18 to 24 are ‘firmly in favour’ of membership, poll shows
You can STILL be jailed for being a republican, government confirms, and it remains illegal to even 'imagine' overthrowing the Queen
Kiss and yell: Italian protester charged with sexual assault after kissing riot police officer
Fighting back: the woman giving a voice (and 49,999 others) to the victims of sexism - by giving an airing to their horror stories
PM denies two child limit for benefits is part of Tory welfare policy
Ethan Couch: Texas quadruple murderer – or a victim of ‘affluenza’?
- < Previous
- Next >
iJobs Money & Business
£25000 - £32000 per annum: Harrington Starr: Junior Business Analyst - Banking...
£25000 - £35000 per annum + benefits + bonus: Harrington Starr: Business Analy...
£50000 - £75000 per annum + benefits + bonus: Harrington Starr: Implementation...
£50000 - £60000 per annum + BONUS + BENEFITS: Harrington Starr: A leading prov...
Day In a Page
A two-bedroom flat with an open plan kitchen and two balconies, close to Arsenal station
A six-bedroom farm house with separate, detached cottages and 371 acres of land
A two-bedroom cottage with parquet floors, chunky beams and an open fireplace
A Grade II-listed home with six bedrooms, secluded landscaped gardens and views across Hadley Green
A Grade II-listed mansion with two apartments and a cottage, near Gretna Green
A three-bedroom Grade II-listed mews house with vaulted ceilings and roof garden
A spacious Grade II-listed family home with annexe and equestrian facilities among four acres of land in Itchingfield
A four-bedroom home with exposed brick walls and open fires in the picturesque village of Northill
A Grade II-listed property with five bedrooms and unique tower, overlooking Hastings Old Town
A charming five-bedroom detached family home, set within half an acre in Kew
A two-bedroom maisonette set on the top two floors of a period building, close to Kentish Town Tube.
Take advantage of the extra space provided by former stables and outbuildings at this five-bedroom farmhouse.
This three-bedroom Victorian terrace is near to Queen’s Road Peckham station, Nunhead station.
A five-bedroom modern house with terrace, swimming pool, Zen treehouse and large carp pond
An unexpected gem with four bedrooms, remarkable vaulted reception and a galleried study area
A five-bedroom house in one of Lymington's most sought after tree lined avenues, moments from the marinas and sailing clubs
A grand early 19th century B&B close to the historic harbour, with four en suite bedrooms
A four-bedroom, 17th century home with walled gardens, a landscaped terrace, cellar and open fires
A six-bedroom house with five bathrooms and four reception rooms spread over 4,000sq ft of luxury living space
A stunning three double-bedroom apartment with two decked terraces in the exclusive gated community, Bromyard House
A 10-bedroom period, family home amid beautiful surroundings in the centre of the Wentworth Estate in Longcross village
A stylish three-bedroom apartment with two bathrooms and private landscaped garden, moments from Fitzroy Square
A Grade II-listed Elizabethan barn with landscaped gardens, exposed elm beams and four bedrooms, all with lovely views
A six-bedroom family home, dating back to 1280 with four reception rooms, barn, swimming pool and tennis courts in Harwell
A spacious two-bedroom flat, refurbished to a very high standard with private landscaped garden, close to Kentish Town station
An exceptional two-bedroom apartment with balcony and underground parking in the centre of Richmond
A one-bedroom, luxury, duplex apartment in the grand landmark building, Imperial Hall
Run a fabulous boutique shop, live above it in a one-bedroom flat and let a second one-bedroom flat that comes part and parcel
A Grade-II listed, thatched cottage in Hundleby village, with five bedrooms, a coach house and three and a half acres
A spacious two-bedroom flat in the heart of Hoxton Square with wooden floors and roof terrace
A five-bedroom family home with stunning pool and gym complex set among two acres of land
A six-bedroom period house with heated swimming pool and a separate two-bedroom annexe cottage in Townlake, £795,000
A spacious and contemporary two-bedroom flat arranged over three floors, with garden patio close to St George Square, £600,000
A one-bedroom flat in a beautiful Regency building opposite the beach in Kemp Town, £190,000
A two-bedroom flat with London skyline views close to Surrey Quays. £395,000.
A seven-storey tower with three bedrooms and a stunning roof terrace. Guide price: £850,000.
A 16-bedroom country pile with nine reception rooms, four self-contained flats and a 13th century Peel Tower. £850,000.
A classic six-bedroom Victorian Manse house 10 miles from Edinburgh. £495,000.
John Lennon's childhood home in Liverpool to be sold at auction. Guide price: £150,000-£250,000.