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Ten years after Northern Rock: bring back 100pc mortgages to ‘fix Britain’s housing market’

Ten years after Northern Rock: bring back 100pc mortgages to 'fix Britain's housing market'

There are growing calls for Britain’s financial watchdogs to relax aspects of the post-crisis regulations and allow the resumption of  controversial “100pc mortgages” – where homebuyers put down no deposit whatever.

Lenders, brokers, academics and other property commentators claim the the “kneejerk” response to ban 100pc home loans lacks logic, is socially divisive and will “store up enormous social and financial difficulties in decades to come”.
High “loan-to-value” mortgages have been controversial for many years. Even before its notorious collapse in 2007, Northern Rock was being criticised for its decision to lend as much as 125pc of a property’s value (see below).
But many claim that for younger borrowers who do not have family assistance in raising a deposit, the only way to buy is via a 100pc mortgage. They point to the availability of 100pc loans throughout the Nineties and say it is only in the wake of the 2007-2009 banking crisis that this form of lending has been withdrawn.
 
In the immediate aftermath of the crisis mortgage lending across the board collapsed. The sale of mortgages at loan-to-value ratios of above 75pc all but ceased.
Since 2012 a number of Government initiatives, such as Help to Buy, brought about an increase in higher loan-to-value deals, but today the maximum typically lent is 95pc of the property’s value. Even these loans are comparatively difficult to obtain and come at a very high rate.
Tough regulations make it expensive and cumbersome for banks to lend at high loan-to-value ratios and as a result very little business is done.

Tough regulations make it expensive and cumbersome for banks to lend at high loan-to-value ratios and as a result very little business is done.
Britons face lifetime of debt as Bank of England warns over 35 year mortgages 
In 2007, 5.6pc of all new lending was at a loan-to-value of 95pc or more. Today that figure is 0.2pc, according to UK Finance (formerly the Council of Mortgage Lenders).
At the same time, borrowers are subject to rigorous income checks and other tests to ensure they can meet monthly repayments in a range of scenarios.
“There is no reason that anyone should object per se to 100pc mortgages,” said Ray Boulger, one of Britain’s leading mortgage analysts and whose experience of the market spans several decades.
“It is a shame 100pc loans are not available. If borrowers can afford monthly repayments, with a risk of interest rate rises factored in, why is it a problem?”
He and others argue that (unlike in 2007) applicants are currently “stress-tested” before they are offered mortgages, with scenarios in which mortgage rates of 6pc or even 8pc are applied. With many popular mortgage deals now charging less than 2pc, this is a comfortable safety net, Mr Boulger believes.
He pointed out that even if house prices do not rise, it would take a borrower with an initial 100pc mortgage just two years and three months to “build up 5pc equity through their repayments”.
“Previous data has shown that borrowers with little or no equity in their property do have slightly higher arrears rates than others,” he said. “But more recently it appears that as affordability has improved this is no longer clearly the case.”
‘We are regulating ourselves into a full-blown housing crisis’
The return of 100pc mortgages is also seen as a desperately-needed measure to stimulate the sluggish housing market “from the bottom up”.
“The starting point of course is that no-one should get a mortgage if they cannot afford one,” said Paul Smith, chief executive of Haart, Britain’s biggest independent estate agency chain. “But that does not mean they shouldn’t be offered 100pc mortgages.”
He says it is a “sad, unlucky twist in fate that has deprived a generation of the opportunity to own property”.
“If you look back to the Nineties and early 2000s, 100pc mortgages were common and were for many prudent borrowers the only way they could buy. The crisis has come along and now, as a result of regulatory overkill, a whole cohort of youngsters are being denied that same opportunity.”
Source: The Telegraph Newspaper

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