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Companies had all but withdrawn this product in the dog days of the early 1990s, when a combination of widespread repossessions, negative equity (property value less than the amount of the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
This phoenix rose from the stage at the London Olympics. The insurer grew out of zombie life insurance funds

Phoenix Life: Chance of a refund for overcharged policyholders has risen

A retired adviser got his money back from the insurer after claiming he had been overcharged. Thousands of others may have a strong case
Expect a new wave of fishing expeditions by fraudsters now we can invest our life savings

Cold callers and your pension: watch out for dangerous boiler room scams

Sean O'Grady received a cold call last week that was much more sinister than normal. Yes, someone wants to get their hands on his pension...

Fuel poverty could claim 100,000 lives over next 15 years, warns energy charity

The NHS is currently bearing a yearly burden of approximately £1.5bn treating cold-related illnesses every winter

MPs call for Equitable Life policyholders to be paid £2.8bn owed by government

Hundreds of thousands of people's policies were hit when the mutual insurer almost collapsed at the turn of the century

The elderly woman's family discovered the mistake

DWP criticised after it left a pensioner £26,000 worse off

The Department for Work and Pensions has been slammed after a series of cock-ups left an elderly pensioner £26,000 worse off.

The FCA has today issued a consultation paper on its plans to tighten up consumer credit rules to give consumers greater protection on guarantor loans and in other areas

Payday loan companies must publish their rates, says CMA

A 20-month investigation concluded that a lack of price competition between lenders has led to higher costs for borrowers

Vulnerable consumers are defined as those with poor literacy skills, those who have caring responsibilities, people with disabilities, dementia or the old

Financial companies are not meeting the needs of vulnerable consumers, says City Watchdog

The Financial Conduct Authority said the industry needs to start thinking about solutions to these challenges

The FTSE 100 is inching closer to its record high but can it maintain these levels?

In 1999 stock markets quickly tumbled, losing many a fortune in the process

Tax-free savings: Freedom dawns for the junior savers caught in low-income accounts

The parents of six million children stuck with low-interest saving accounts worth more than £5bn will be able to move the cash from this April. But what are their options? Samantha Downes reports

How much lower will mortgage rates go?

Another day, another cut. As lenders compete to offer the cheapest deals, Simon Read asks if borrowers should jump in now or wait for further falls

Are bills ruining your family life? Try the lover's guide to coping with debt...

If you're in the red and can't find a way out, it's time to get some help. Neasa MacErlean hears that relationships will suffer unless you are open with your partner, but there are organisations that will put you on the right track and get you talking

How to complain: From retailers to energy suppliers, it's easier than you think

When companies let us down, millions of us just take it on the chin. Simon Read shows how to make your voice heard
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

    Ashdown Group: Trainee Consultant - Surrey / South West London

    £22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

    SThree: HR Benefits Manager

    £40000 - £50000 per annum + pro rata: SThree: SThree Group have been well esta...

    Recruitment Genius: Office Manager / Financial Services

    £30000 - £37000 per annum: Recruitment Genius: Established in 1999, a highly r...

    Jemma Gent: Year End Accountant

    £250-£300 Day Rate: Jemma Gent: Are you a qualified accountant with strong exp...

    Day In a Page

    The difference between America and Israel? There isn’t one

    The difference between America and Israel? There isn’t one

    Netanyahu knows he can get away with anything in America, says Robert Fisk
    Families clubbing together to build their own affordable accommodation

    Do It Yourself approach to securing a new house

    Community land trusts marking a new trend for taking the initiative away from developers
    Head of WWF UK: We didn’t send Cameron to the Arctic to see green ideas freeze

    David Nussbaum: We didn’t send Cameron to the Arctic to see green ideas freeze

    The head of WWF UK remains sanguine despite the Government’s failure to live up to its pledges on the environment
    Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

    Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

    Set in a mythologised 5th-century Britain, ‘The Buried Giant’ is a strange beast
    With money, corruption and drugs, this monk fears Buddhism in Thailand is a ‘poisoned fruit’

    Money, corruption and drugs

    The monk who fears Buddhism in Thailand is a ‘poisoned fruit’
    America's first slavery museum established at Django Unchained plantation - 150 years after slavery outlawed

    150 years after it was outlawed...

    ... America's first slavery museum is established in Louisiana
    Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

    Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

    The first 'American Idol' winner on how she manages to remain her own woman – Jane Austen fascination and all
    Tony Oursler on exploring our uneasy relationship with technology with his new show

    You won't believe your eyes

    Tony Oursler's new show explores our uneasy relationship with technology. He's one of a growing number of artists with that preoccupation
    Ian Herbert: Peter Moores must go. He should never have been brought back to fail again

    Moores must go. He should never have been brought back to fail again

    The England coach leaves players to find solutions - which makes you wonder where he adds value, says Ian Herbert
    War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

    The battle for Mosul will unleash 'a million refugees'

    Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn
    Yvette Cooper: We can't lose the election. There's too much on the line

    Yvette Cooper: We can't lose the election. There's too much on the line

    The shadow Home Secretary on fighting radical Islam, protecting children, and why anyone in Labour who's thinking beyond May must 'sort themselves out'
    A bad week for the Greens: Leader Natalie Bennett's 'car crash' radio interview is followed by Brighton council's failure to set a budget due to infighting

    It's not easy being Green

    After a bad week in which its leader had a public meltdown and its only city council couldn't agree on a budget vote, what next for the alternative party? It's over to Caroline Lucas to find out
    Gorillas nearly missed: BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter

    Gorillas nearly missed

    BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter
    Downton Abbey effect sees impoverished Italian nobles inspired to open their doors to paying guests for up to €650 a night

    The Downton Abbey effect

    Impoverished Italian nobles are opening their doors to paying guests, inspired by the TV drama
    China's wild panda numbers have increased by 17% since 2003, new census reveals

    China's wild panda numbers on the up

    New census reveals 17% since 2003