100% mortgages were a type of mortgage product where the mortgage lender provided a mortgage to cover the full value of the property. You did not need to put down any deposit at all. If you were buying a property for 120,000 your new mortgage would be for the full 120,000
These no deposit mortgages were withdrawn by UK mortgage lenders towards the end of 2008, as the “credit-crunch” tightened its grip on the UK’s financial sector. First one lender, then the next pulled their 100 percent mortgage products over a period of just a few weeks.
These no deposit mortgages were very popular products for first time buyers - and certainly made it possible for a large number of first time buyers to get onto the property ladder during the UK housing boom between 2000-07. In fact, it has been estimated that well over 50% of all first time buyers would not have been able to get onto the property ladder at all under current mortgage lending conditions. The reduced flow of first time buyers is regarded as one of the primary causes of the current housing market stagnation.
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 in conclusion, no deposit mortgages seemed a safe bet for borrowers and lenders in a rising property market. But, they were always going to lead to problems if the property market turned. Are 100% mortgages intrinsically bad? No - I don’t believe so. Are they risky? Of course. Greater equity has always meant lower risk for lender and borrower. However, if we just look at the big picture, I am sure the number of people that have benefited from no deposit mortgages over the last 10 years by far outweighs the number that have suffered.
But for now, and maybe forever - RIP 100% mortgages.
For further information on 100% Mortgage products availability, why not pop over and visit the 100mortgagesuk.co.uk website.
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