Are 100% Mortgages Gone For Good? | Mortgage

by RichardPBest

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100% mortgages were withdrawn by UK mortgage lenders towards the end of 2008, as the credit crunch tightened its grip on the UK's financial sector.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.

Looking back, with the benefit and wisdom of hindsight, it is easy to criticise 100% mortgages and flag them up as risky products offered irresponsibly and short shortsightedly by UK mortgage lenders. But 100% mortgages will almost certainly have contributed to the housing boom which occurred between 2000 to 2007 which very many people benefited from. As mentioned above, many homeowners would not have been homeowners over the last 10 years had it not been for 100% mortgages. The sudden rapid withdrawal of 100% mortgage products will have in itself acted as a significant factor in stagnating the housing market by reducing the number of first time buyers, I suspect.

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 who knows maybe forever - RIP 100% mortgages.

DISCLAIMER: This article is provided as information only and is not to be taken as financial advice.

If you would like to find out more about 100% Mortgage products then visit the 100% Mortgages UK website.