Have We Seen The End Of 100% Mortgages?

100% mortgages were a type of mortgage product very popular with first time buyers. They enabled you to borrow the full value of a property in a mortgage loan. In other words, if you were purchasing a property for 150,000 with a 100% mortgage you would not need to find a deposit. The mortgage lender would provide you with a mortgage for the full 150,000 amount.

No deposit mortgages ceased to be made available by UK lenders in the final quarter of 2008, as the “credit-crunch” crunched. In a period of literally just a few months, UK mortgage lenders withdrew their 100% mortgage products from the market.

These mortgages were naturally very attractive and popular products for first time buyers. Without no deposit mortgages, many people who were able to get onto the property ladder between 2000-07 would have been left dreaming about home ownership. In fact one study has shown that more than 50% of people who obtained mortgages between 2003-06 would not have been able to obtain mortgages under current market conditions. This reduced flow of mortgage approvals has resulted in fewer first time buyers, and therefore a stagnated housing market with prices falling across many regions of the UK.

So although with the benefit of hindsight, 100% mortgages have a number of critics, they certainly had a positive effect on the flow of first time buyers into the property system, which in itself helped to prop up house prices for a prolonged period. In fact, the sudden withdrawal of this type of mortgage has probably in itself had a hugely negative effect on the people that took out this type of mortgage in the 3 years prior – dropping many of them into a negative equity situation where their property is worth less than the mortgage outstanding on it.

So will we see no deposit mortgages again? It is highly unlikely in the near future, and the powers that be have even suggested banning them for good. But I certainly expect that we will see 95% mortgages in mainstream supply again some time in the next 3 years, and once the mortgage and property markets return to strength lenders will no doubt invent innovative products in order to win first time buyer business. This may be no deposit mortgages where a charge is also taken over a parent or family members property to cover the risk. Or maybe a 90% mortgage with a 10% unsecured loan. Who knows…

So if we look back now at the way things have turned out, it is easy to see with the benefit of hindsight that no deposit mortgages were risky products. But are they inherently risky and should they be banned? I will sit on the fence and say I am not sure. One thing that is for sure is that 100% mortgages served a purpose for a number of people, and without them many people would not have been able to reach the first rung of the property ladder. So I would still like to think that taking everything into consideration that no deposit mortgages were a good thing, but are maybe better left in the past than brought back in the future.

But for now, and maybe forever – RIP 100% mortgages.

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