Forty eight percent of the UK population thinks re-introducing 100% mortgages is a good idea, according to polling data from YouGov.
The research polled 9,713 British adults and asked what they think of deposit-free mortgages.
Almost half of those polled believed this type of lending was a good idea, 32% said it was a bad idea, and 20% said they didn’t know.
And it’s not just the general public who wish for the return of the 100% mortgage. In a report on first-time buyers, The Building Societies Association (BSA) is urging building societies to ‘revisit’ the case for lending to those who wish to buy a property without a deposit.
The BSA has labelled the taboo surrounding 100% mortgages ‘arbitrary’, claiming that modern technology could help lenders assess how risky each borrower is before approving their application.
“Most underwriters in the sector who we spoke to are not philosophically averse to lending 100% [mortgages],” the BSA report said.
Although the suggestion has been criticised by many, some lenders already continue to offer products that don’t require a deposit. Often, in this instance, borrowers must provide another form of collateral such as a family member’s savings or home.
But the BSA is urging building societies to ‘push harder’ in the direction of 100% loan-to-value mortgages, which haven’t been widespread since the financial crisis a decade ago.
Why are people pushing for the return of the 100% mortgage?
The BSA report said: “Let us take the case of a borrower wanting a 95 percent LTV loan who had recently taken out a car loan on credit,” it said.
“As long as there was sufficient affordability, then most lenders would accept that loan, assuming the borrowers’ saved funds were used as the deposit.
“On the other hand, if that borrower had used the saved deposit for the car and therefore asked for a 100 percent LTV loan, the application would be rejected.
“The credit position is fundamentally the same, but the stance of lenders would be quite different.”
What are the downsides of the 100% mortgage?
The worry with 100% mortgages is that if house prices fall, the borrower can find themselves in negative equity. This happens when the amount they owe exceeds the property’s value.
Negative equity can make it incredibly difficult for homeowners to remortgage their properties or move house. In some cases, borrowers can be moved onto their lender’s standard variable rate (SVR) once their fixed rate deal expires and if they’re in negative equity, they’re unable to switch to a more affordable rate.
This can be a problem for lenders too - particularly if a significant number of their customers see a dramatic drop in the value of their properties.
