Broker discusses the impact for the industry, positive and negative
Skipton Building Society changed the game when it introduced its 100% loan-to-value (LTV) mortgage product.
The product’s introduction surprised many in the industry, with a host of experts suggesting it might prompt a widespread return of deposit-free offerings, while others expressed caution about the mortgage industry failing to learn the lessons of previous financial meltdowns.
Katrina Horstead (pictured), senior mortgage broker at The Mortgage Mum, said it is possible that we could see a resurgence of 100% LTV mortgages in the UK, with others quickly following Skipton’s lead.
“However, it is important to note that lending standards and regulations can change over time, and lenders may be more cautious about offering high LTV mortgages in order to protect themselves from risk,” Horstead said.
What would a widespread return look like?
Horstead said that if deposit-free mortgages were to make a widespread return, it is likely they would come in the form of guarantor mortgages, family deposit mortgages, or family offset mortgages.
“Standalone deals may also be an option, but lenders would be more cautious about offering them given the potential risks involved,” she said.
Their availability would also depend on a range of factors, including economic conditions, lender appetite for risk, and regulatory considerations, with potential for significant market impact.
“There are several potential impacts that the reintroduction of 100% LTV products could have on the UK mortgage market,” Horstead said.
On the one hand, she believes it could make homeownership more accessible for first-time buyers and those with lower deposits. In turn, Horstead said this could stimulate demand for housing and potentially push prices up in some areas.
On the other hand, Horstead said it could also increase the risk of defaults if borrowers take on more debt than they can afford.
“Lenders may also be more cautious about offering these products given the lessons learned from the last financial crisis,” Horstead said.
She added that the overall impact would depend on how the market responds and whether lenders can manage the risks effectively.
Deposit-free mortgages - positive or negative for the market?
Assessing whether the return of 100% LTV mortgages would be a positive or a negative for the market overall, Horstead said there are both pros and cons to their widespread return.
She reiterated that the availability of 100% deals would benefit first-time buyers that may be unable to access the property ladder without it. However, she added that the likelihood of individuals defaulting on their mortgage would also increase with this mortgage type. Another factor to consider, Horstead said, is that if more people are able to purchase homes with 100% LTV products, it could potentially reduce the demand for rental properties in the UK.
“This could lead to landlords reducing rents to attract tenants, or even deciding to sell their rental properties,” she said.
However, Horstead said it is difficult to predict exactly how the rental market will be impacted, as it depends on a variety of factors such as the availability of these products, interest rates, and the overall state of the economy.
“Whether the widespread return of deposit-free mortgages would be a positive or a negative for the market would depend on how these mortgages were implemented, and what safeguards were put in place to mitigate risk,” she concluded.
How do you think a widespread return of deposit-free mortgages would impact the market? Let us know in the comment section below.
