Two lenders now offer no deposit 100% mortgages: Could a major bank launch one next?

Daily Mail​

5 days ago

Two lenders are now offering people the chance to buy a home with a mortgage covering the entire purchase price.
April Mortgages and little-known lender Gable Mortgages are both providing the home loans which don't require the borrower to put down any deposit.
No-deposit mortgages have been extremely rare in recent years, with most lenders requiring the borrower to put down at least 5 per cent.
Those that do offer deposits lower than that often require a parent to act as a guarantor.
April requires a minimum income of £24,000 to get its 100 per cent deal, and borrowers will also need to fix for either 10 years or 15 years - much longer than the normal two or five year products most people sign up to.
Its interest rate initially starts at 5.99 per cent. On a £200,000 mortgage being repaid over a 25 year term that would mean paying £1,288 per month.
Gable Mortgages has two products available -a standard mortgage, and one that is specific to new-build buyers purchasing a home from a list of 'partner' developers. Both of the mortgages are offered on a five-year fixed term only.
Gable borrowers need to be aged at least 23 and want to borrow a minimum of £125,000. They must also go through a mortgage broker.
The rate on the standard mortgage is 5.95 per cent, and on the new-build mortgage is 5.65 per cent.
The return of 100 per cent mortgages signals both innovation and caution in the market, according to Ravesh Patel, director and senior mortgage consultant at broker Reside Mortgages.
'These products can offer a valuable solution for renters stuck in the 'deposit trap,' saiys Patel, 'especially those with strong, consistent payment histories but limited ability to save.
'These mortgages can be genuinely beneficial, but only for a narrow segment of the market and under the right circumstances.
'For renters with a solid income and clean credit record, but no access to a deposit such as younger professionals or healthcare workers paying high rents—they can be a lifeline into homeownership.
'These borrowers often have a track record of managing monthly outgoings that match or exceed what their mortgage repayments would be.'
Could a big bank launch one soon?
Mortgage lenders appear to be very keen to entice borrowers at present.
On top of rates falling, a whole host of major banks have relaxed their own affordability rules enabling people in many cases to borrow tens of thousands of pounds more than they could at the start of the year.
Last month, the number of mortgage deals available to those buying with a 5 per cent deposit has reached its highest level since the financial crisis, according to Moneyfacts.
While rules are being relaxed, new products keep being dreamt up.
Earlier this month, Skipton Building Society began offering borrowers the chance to get a mortgage without having to make repayments for the first three months.
Last month, April Mortgages began offering home buyers and homeowners the opportunity to borrow up to seven times their annual salary - as opposed to the usual four and a half times.
With so much change taking place in such a short space of time, it isn't hard to imagine a major lender starting to offer a 100 per cent mortgage soon.
'It's possible,' says Ravesh Patel. 'However, to increase more contestability in this specific market segment, government support or guarantees are crucial.
'High street lenders are acutely aware of the reputational and regulatory risks associated with high loan-to-value (LTV) lending.
'A major bank might enter the space if there's political or public pressure to support first-time buyers, but it would likely be in a tightly controlled format, perhaps linked to family support or limited to specific borrower profiles.'
Is this different from what was on offer pre-crisis?
As of September 2007, there were 241 mortgages that covered 100 per cent of a purchase price, according to Moneyfacts' Mortgage Treasury Report data.
These quickly disappeared over the next year as the financial crisis unraveled.
There are currently 20 no-deposit mortgage options, according to Moneyfacts - most of which require a family member to act as a guarantor.
With the arrival of April's and Gable's 100 per cent loan-to-value deals in quick succession some may feel we are heading back towards the dangerous territory or irresponsible lending.
However, lenders are governed by much stricter checks and balances in today's market, according to Patel.
'Pre-crisis 100 per cent mortgages were often paired with lax affordability checks, self-certification, and interest-only structures—creating a toxic mix when the market turned,' says Patel.
'Today's versions are typically built around affordability models that mimic rent payments, much cautious underwriting and are stress-tested under stricter FCA rules, which adds a layer of security for both lender and borrower.
'In short, while these products share a name with their pre-2008 predecessors, the regulatory environment, underwriting practices, and structure are far more cautious. The intention is to offer targeted support without compromising financial stability.'
Are 100% mortgages a good way of getting on the ladder?
While these offers can be great for those struggling to get onto the property ladder, borrowers should think carefully before taking a 100 per cent mortgage.
Biding one's time to save even a small deposit could save them more money and give them greater security in the long run.
For a start, monthly payments will be higher given the higher rates.
'When opting for a higher-risk mortgage such as a 100 per cent or 95 per cent per cent loan-to-value, one of the things you need to consider is how high monthly payments may be each month and whether you can afford them or not,' said Jonathan Bone, head of mortgages at broker Better.co.uk.
'Lenders in general consider high-loan-to-value mortgages risky and so often add higher interest rates to limit the number of people opting for them.
'This can translate to larger monthly payments and more interest paid over the mortgage term.
There is also a greater risk of negative equity if house prices were to fall.
'When opting for a higher-risk product, you also need to consider the potential of negative equity,' adds Bone.
'If property prices fall, your mortgage could end up exceeding the value of your home, leading to negative equity, which can make it difficult to sell or remortgage in the future.'
While homeownership remains one of the most common ways to build household wealth, starting with no equity means the wealth-building journey is likely to be slower, according to Ravesh Patel.
He says: 'Buyers relying on 100 per cent mortgages should have a clear, proactive plan to reduce the loan balance over time, ideally through regular overpayments.
'This often requires lifestyle adjustments or cost savings elsewhere in the household budget, which not all buyers are prepared for.
It's also important not to rely solely on future property price growth to build equity.
'While the housing market may appreciate over time, this is not guaranteed and exposes buyers to the risk of negative equity, particularly in the early years,' he adds.
'In short, a 100% per cent mortgage may offer a faster entry point to owning a home, but buyers must treat it as a strategic financial commitment, not just a shortcut.
'Long-term stability and wealth creation will depend on how effectively they manage the debt—not just on the market.'
Best mortgage rates and how to find them
Mortgage rates have risen substantially over recent years, meaning that those remortgaging or buying a home face higher costs.
That makes it even more important to search out the best possible rate for you and get good mortgage advice, whether you are a first-time buyer, home owner or buy-to-let landlord.
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