Impact

Northern

<p>For the first time since the 2008 financial crisis, mortgage lenders are once again offering 100% home loans. This development represents a seismic shift in the mortgage lending landscape.</p>
<h2 style="text-align: center;" id="a-lifeline-for-first-time-homeowners">A Lifeline for First-time Homeowners</h2>
<p>Skipton Building Society is leading this charge by launching loans tailored for first-time buyers who lack a deposit. Although the specifics of the mortgage are yet to be revealed, a noteworthy condition for potential borrowers is the demonstration of a consistent history of rental payments equivalent to mortgage repayments over a two-year period. To mitigate the risk of negative equity, the deal will carry a fixed term extending beyond two years.</p>
<blockquote class="twitter-tweet" data-width="500" data-dnt="true">
<p lang="en" dir="ltr">&quot;It gives some good insight on the detail we considered before launching the product and the considerations for customers before taking out the products&quot;<a href="https://twitter.com/hashtag/SkiptonTrackRecord?src=hash&amp;ref_src=twsrc%5Etfw">#SkiptonTrackRecord</a> <a href="https://t.co/7UMS8SV7I0">https://t.co/7UMS8SV7I0</a></p>
<p>&mdash; Skipton Press Office (@SkiptonBS_press) <a href="https://twitter.com/SkiptonBS_press/status/1656285128677531650?ref_src=twsrc%5Etfw">May 10, 2023</a></p></blockquote>
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<h2 style="text-align: center;" id="bridging-the-rent-mortgage-gap">Bridging the Rent-Mortgage Gap</h2>
<p>In a recent interview with The Times, Skipton’s chief executive, Stuart Haire, expressed the building society&#8217;s commitment to assist individuals burdened by rent. He empathised with the plight of those paying more in rent than they would on a mortgage, and suggested that such a situation could warrant a &#8220;good mortgage loan&#8221;.</p>
<p>Although Haire did not provide concrete details on the mortgage’s value, he indicated the lender&#8217;s intent to break free from conventional loaning practices that sideline tenants who consistently meet rental obligations but fail to secure a mortgage due to an inability to save for a 5% deposit.</p>
<h2 style="text-align: center;" id="affordability-the-key-challenge">Affordability: The Key Challenge</h2>
<p>With the average UK house price standing at £288,000 in February, a 5% deposit would require a potential buyer to save up £14,400. This daunting figure has made homeownership an elusive dream for many.</p>
<p>This innovative move by Skipton marks the first return of a 100% mortgage since the last financial crisis. Some lenders, including Barclays, Lloyds, and a few smaller building societies, offer 100% loans, but these are contingent upon a deposit of up to 20% provided by the borrower’s family.</p>
<p><img decoding="async" loading="lazy" class="aligncenter size-full wp-image-23007" src="https://walletinvestor.com/magazinadmin/wp-content/uploads/2023/05/Uk-houseprices.jpg" alt="" width="1037" height="672" srcset="https://walletinvestor.com/magazinadmin/wp-content/uploads/2023/05/Uk-houseprices.jpg 1037w, https://walletinvestor.com/magazinadmin/wp-content/uploads/2023/05/Uk-houseprices-300x194.jpg 300w, https://walletinvestor.com/magazinadmin/wp-content/uploads/2023/05/Uk-houseprices-1024x664.jpg 1024w, https://walletinvestor.com/magazinadmin/wp-content/uploads/2023/05/Uk-houseprices-768x498.jpg 768w" sizes="(max-width: 1037px) 100vw, 1037px" /></p>
<h2 style="text-align: center;" id="potential-impact-on-homeownership">Potential Impact on Homeownership</h2>
<p>Should <a href="https://www.skipton.co.uk/">Skipton’s</a> 100% mortgage initiative gain traction and inspire other banks to follow suit, it could potentially stimulate the government&#8217;s efforts to boost homeownership. Last year saw a drop of 35,200 first-time buyers compared to 2021, according to UK Finance. The main culprit behind this decline was the elevated mortgage rates that rendered property ownership unaffordable for many.</p>
<h2 style="text-align: center;" id="the-government-8217-s-response">The Government&#8217;s Response</h2>
<p>The government&#8217;s perceived failure to construct enough new homes has resulted in mounting concern among Conservative MPs, who fear losing support among younger voters. In response, a guarantee scheme insuring 95% loan-to-value mortgages has been extended by an extra year to encourage banks to continue offering them.</p>
<h2 style="text-align: center;" id="a-look-back-to-pre-2008-mortgage-practices">A Look Back to Pre-2008 Mortgage Practices</h2>
<p>Prior to the 2008 crisis, all major lenders, including HSBC, Lloyds, NatWest, and Abbey National (now Santander), offered no-deposit mortgages. Shockingly, some banks, like Northern Rock, even lent up to 125% of a property&#8217;s value, betting on the continual rise of property prices.</p>
<p>These loans vanished in the aftermath of the 2008 financial meltdown amidst a crackdown on risky lending. However, some experts argue that the real issue was not the loan-to-value ratio, but the lack of affordability checks on borrowers.</p>
<p><iframe loading="lazy" title="The Big Short Featurette - Meet Michael Burry (2015) - Christian Bale Drama HD" width="500" height="281" src="https://www.youtube.com/embed/YKTXfDSKoJM?feature=oembed" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share" allowfullscreen></iframe></p>
<h2 style="text-align: center;" id="risks-and-predictions">Risks and Predictions</h2>
<p>As the return of 100% mortgages brings hope to many aspiring homeowners, it&#8217;s crucial to assess the associated risks. Borrowers face a higher likelihood of negative equity should property values continue to decline. Given the recent trend of falling property prices and an anticipated 11% drop this year, Fairer Finance&#8217;s managing director, James Daley, cautions against mainstream adoption of 100% mortgages. He emphasizes the importance of vigilance and prudence in lending practices to prevent exacerbating market vulnerabilities.</p>
<h2 style="text-align: center;" id="caution-against-mainstream-return">Caution against Mainstream Return</h2>
<p>James Daley, managing director of Fairer Finance, has cautioned against the mainstream return of 100% mortgages. While Daley does not support outright banning, he believes these loans should be reserved for a select group of borrowers. These individuals may currently lack sufficient funds for a deposit but have a clear path towards significant financial improvement in the coming years.</p>
<h2 style="text-align: center;" id="100-mortgages-boon-or-bane">100% Mortgages: Boon or Bane?</h2>
<p>With no initial deposit required, borrowers could end up in negative equity if their property value drops. For instance, a mere 3.67% decrease in property value after two years could plunge a borrower with no deposit into negative equity. This risk escalates to a 9.7% property value fall after five years, potentially leaving the borrower with nothing if they decide to sell and relocate.</p>
<blockquote class="twitter-tweet" data-width="500" data-dnt="true">
<p lang="en" dir="ltr">The true cost of a 100% Mortgage worth £250,000 🏡 <a href="https://t.co/I2Ys58QBJR">pic.twitter.com/I2Ys58QBJR</a></p>
<p>&mdash; HeWantsWealth 🇯🇲🏡💰📈 (@hewantswealth) <a href="https://twitter.com/hewantswealth/status/1656208962146926594?ref_src=twsrc%5Etfw">May 10, 2023</a></p></blockquote>
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<h2 style="text-align: center;" id="the-market-8217-s-reaction">The Market&#8217;s Reaction</h2>
<p>Despite these risks, the mortgage market&#8217;s reaction to the return of 100% loans is worth noting. The Nationwide building society reports a 2.7% decrease in property prices in the past year. This, coupled with predictions of an 11% price fall this year, raises crucial concerns about the viability and wisdom of 100% mortgages in the current market scenario.</p>
<h2 style="text-align: center;" id="a-balancing-act">A Balancing Act</h2>
<p>In conclusion, the reintroduction of 100% mortgages marks a significant shift in the lending landscape. While they may provide a lifeline for first-time homeowners struggling to save for a deposit, they also carry inherent risks, notably the potential for negative equity. As the market evolves, lenders, borrowers, and regulators must carefully balance these considerations to ensure the stability and sustainability of the housing market.</p>

Mortgage Lenders Offer 100% Loans for First Time Since 2008

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