This Is Barely Credible Everyone ! The 100% Mortgage Is Back On The Market. But Is It Really Sustainable?
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You would think that the recent financial meltdown was a thing of the past(period 2006 to 2008)when banks and other financial institutions were bending backwards to give 100% mortgages (in some cases more than 100% mortgages)at very low interest rates but it is back albeit perhaps well before its due time.
A mortgage offering homebuyers the chance to borrow 100% of the cost of their property has been launched by Aldermore bank. The Family Guarantee Mortgage is the first home loan available to buyers without a deposit since the credit crunch. However, the deal, which is available to first-time buyers and movers, has an interest rate of 6.48% and borrowers must find a relative willing to guarantee any borrowing above 75%.
I would say it would be finanial madness (unless you are a self made millionaire with real genuine hard cash not paper money or simply asset rich but cash poor) to become a guarantor for anyone becuase the financial insecurity of the housing market and the general brittleness of the stock market and economic recovery is there for all to see.
Such an offer of 100% mortgage beggars belief and somewhat irresponsible. But like prevously, if it earns Aldermore lots of new business and improves profit margins I am sure other banks will follow suit.
Responses (6)
I genuinely felt that it would take some financial institution to break ranks and do something like going it alone.
We'll wait and see whether others will follow suit in the coming months. Aldermore's data will be scrutinised excessively in the coming months by the big players in the market place.
I think it is both a brave and potentially foolhardy move but in some way this has the potential to 'kick start' the stagnant housing market especially for first time buyers.
First time buyers have been priced out of the market what with needing 20-30% deposits to even get a mortgage hearing with the banks. I know of many parents who are prepared to offer their children a financial handout to get them on the housing ladder and so having them as a guarantor is also a useful backup.
I sincerely hope that this approach will weed out the unprofessional practices which played a part in the devastation that befell many during the credit crunch, where their mortgages were secured against dubious paperwork, which inflated and over egged their finances and their salary and this paperwork was willing accepted by lenders.
Are Aldermore an independent finance house or are they backed by some big player in the industry? This is a situation worth following.
Well someone was always going to re introduce the 100% mortgage it was just a matter of time.With the requirement of a guarantor they have more or less covered all the bases.
Knowing the total inflexibility of the current mortgage market, this indeed does beggar belief. But it's like anything in life, if it's too good to be true, it probably isn't.
It comes at a price and puts a lot of responsibility on this 'family guarantor' and it would be good to know the default mechanism in a case like that. And I also suggest that the underwriting is going to be the acid test ... everybody in the loop is going to have to be squeaky clean and I suspect the income multiples are going to be restricted.
Add into the equation the question of a valuation and you have another point of debate. There is still a lot of speculation on where house prices are going but everyone seems to agree that they will rally in the next 12 months or even dip a tad. Frankly, I don't think we have seen the full effects of the current government cuts and I suspect that the economy is still in line for massive changes. Unemployment figures are spiralling, the retail market is in a bad way despite the hype and a 1930s style recession is probably not that far away. So how does that reflect on the stability of house prices and the ability to repay?
As such, if this scheme ever takes off, I bet the valuations are suppressed by design.
Oops didn't spot this discussion was already going!
I think this could shake up the mortgage industry and hopefully make some of the big players cut their lending criteria.
Personally I would say that as long as you can afford the mortgage repayments this each month this could make the dream of owning your own property a reality for thousands of people who would otherwise struggle to stump up the deposit.
Whether it would be a good 'investment' at the moment is another discussion entirely, but then don't you think that many people worry too much about their house as an investment rather than looking at it as a home?
Pete has posted an interesting piece on the 100% mortgages too.
Like you say creativesaver it would be financial madness to lend
out that sort of money to a relative and could be the end of a
good relationship if the borrower gets into financial trouble.
Re the 100% mortgage, whereby the applicants borrow up to 100% at a rate of 6.48% fixed for 3 years with a collateral charge required on parents, step parents or grandparents property equal to the amount of new mortgage above 75% LTV. All subject to affordability checks for all applicants.
The lenders risk is low due to the guarantee part being 25% of the loan amount, covered by parents etc. The high rate covers what risk there is for the lender and if the applicants have a high income but little saved funds for deposit then all should be ok. This is not for everyone but is there for certain situations. It is perhaps good that some lenders are actually trying to offer mortgages that are different from the usual in an attempt to help some people get their first property.
Regards. RayExpert disclaimer: This is not financial advice, any suggestions should be taken as general guidance only.
I heard a piece on the radio the other day, Ray, saying that Aldermore (through their intermediaries) have sold quite a few of these, so the niche in the market is there.
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Couldn't have put it better myself, Parchester!
Aldermore are an independent financial institution as far as I'm aware, Parchester, and describe themselves as 'based on a traditional banking model', they seem to be quite well thought of by the financial press.
My understanding is that Aldermore are providers of specialist lending services to small and medium-sized UK businesses and flexible savings accounts to UK savers. Their residential mortgage office is based in Wilmslow and commercial mortgage office based in Peterborough. I had never heard of them previously but since they offer mortgages they would be FSA regulated.The maximum loan size is £250,000 and 25 years is the minimum age of any borrower . There are financial catches of non-refundable booking fee of £299 and a completion fee of £999. The rate is fixed for three years.
The good points on the mortgage is that the mortgage can only be on a repayment basis and buyers will need to prove they can afford monthly payments on the whole amount borrowed. The guarantor, typically a parent or grandparent, will also have to prove they can afford repayments on the sum they are guaranteeing.
Yes, CS, Aldermore has been around for several years. I had heard of it previously as it was offering good rates on its fixed rate savings accounts which frequently came out as a 'best buy' in the financial press. It is indeed regulated by the FSA and covered by the FSCS. Aldermore grew out of what was originally a private bank, Ruffler, which started in the 60s.
The basic strategy behind Aldermore when it started was to grow steadily and slowly, which it seems to have adhered to.