100% mortgages were a type of mortgage product very popular with first time buyers. They enabled you to borrow the full value of the 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 120,000 amount.
100% mortgages were withdrawn by UK mortgage lenders towards the end of 2008, as the credit crunch tightened its grip on the UK's financial sector.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% mortgage products over a period of just a few weeks.
It will not come as a surprise that 100% mortgages were very popular for first time buyers. The rapidly escalating house prices of the period 2000 to 2007 meant that saving a significant deposit became harder and harder, particularly with escalating student debt. Therefore, 100% mortgages made home ownership possible for people who could afford a mortgage, but had not saved a significant deposit. Now 100% mortgages have been discontinued in the UK, the number of first time buyer purchases has dropped significantly. First time buyers need a deposit of at least 10% and even with a chunky deposit, lenders have severely tightened lending criteria. It has been reported that more than 50% of the mortgages approved between 2003-06 would not be approved under current lending conditions; a worrying fact.
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 100% mortgages has probably in itself had a hugely negative effect on the people that took out 100% mortgages 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 100% mortgage again? This is 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 again some time in the next 3 years, and once the mortgage market returns to strength lenders will invent innovative products, no doubt, in order to win business. This may be 100% mortgages where a charge is also taken over a parent or family members property. 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 100% 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 100% mortgages were a good thing.
But for now, and maybe for always - RIP 100% mortgages.
If you would like to find out more about 100% Mortgage products then visit the 100% Mortgages UK website.
