The 100% mortgage returns – but it’s not the product of old
Lloyds Bank launched a 100% mortgage for first-time buyers this week, bringing back bad memories of risky pre-credit crunch lending. While people expressed their anxieties on social media, when you look at the details it’s a far cry from the old days of 100 and 125% mortgages.
In order to qualify family members must deposit at least 10% of value of the loan in a Lloyds Savings account, with an interest rate of 2.5% fixed for three years. In essence, it’s an alternative to being lent or gifted money for a deposit – money is placed in a savings account instead.
The ‘Lend a Hand’ mortgage is fixed for three years at 2.99% for people living in England and Wales, while you can borrow up to £500,000.
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Worth the risk?
Taking out a 100% mortgage still isn’t risk-free, especially with Brexit uncertainty looming on the horizon. If house prices fell you could fall into negative equity, potentially with a loan bigger than the value of the house, meaning you could be stuck with Lloyds Bank for some time.
There are also risks for the family member. If the borrower fails to keep up with repayments the money would be recouped from the linked savings account.
This isn’t a new concept
Despite the dramatic headlines accompanying the launch of the Lloyds Bank mortgage, the concept of being able to borrow a 100% mortgage with the help of a family member’s money in a savings account isn’t new in the post credit crunch era.
Barclays’ ‘Family Springboard’ Mortgage is similarly fixed for three years at 3% with a 10% deposit from a family member. The only difference is the money in the savings account has an interest rate of 2.25% which is linked to the Bank of England interest rates, so it can go up or down depending on whether interest rates do just that.
Other more niche lenders are also involved. Tipton & Coseley Building Society offers a 100% ‘Family Assist’ mortgage at 3.49%, where family members can either deposit 20% of the loan into a savings account or use the value of their own property to cover 20% of the loan value as a last resort.
It remains to be seen whether this 100% mortgage model becomes more popular.
However, it is worth discussing with a mortgage advisor if a family member wants to help you get on the housing ladder without gifting their money.