Shouldn’t we be encouraging people to save?
John Phillips is group operations director of Spicer Haart and Just Mortgages
Due to soaring house prices and years of meagre or non-existent pay increases, the dream of homeownership has been out of reach for many people including first-time buyers who have been unable to go it alone. In light of this and in a move reminiscent of the hike in risky lending before the last financial crash, Barclays has launched a 100% mortgage, and the news has got everyone talking.
Deterioration of standards
Due to the recent tax and legislative changes, many people have argued that anything that stimulates growth in the mortgage market is welcome, particularly as many people are struggling to build up a sufficient deposit due to the cost of living. But is it really a good idea? Shouldn’t we be encouraging people to save? People can borrow the value of the property which poses a serious risk and goes against the MMR’s affordability tests. For example, if the property declines in value after the three year period, the borrower would be trapped in negative equity.
The Bank of Mum and Dad
This mortgage highlights the growing dominance and dependence on the bank of mum and dad which has become the equivalent to the UK’s tenth biggest mortgage lender. This mortgage still requires help from parents who are required to put down at least 10% of the purchase price. Although some parents may be able to put down the necessary amount, what happens for those who are unable to? This will inevitably widen the gap between housing haves and have nots and we as an industry must be careful not to revert back to the days of old.
Learning from the past
In my opinion, these products will not level the playing field between first-time buyers and buy-to-let investors, and it is likely that they will fuel the demand that is continuing to push up prices. Past experiences suggest that buying a home with a mortgage without a deposit is simply not the answer. These 100% mortgages are not a sensible route for lenders to take, and although it’s unlikely that a new wave of lax lending standards and practices will take over the country, lenders are competing to lend in a competitive market so there is of course a possibility that some will take a similar stance.
