100% home loans make a comeback: Three years after the crunch, bank lures buyers

Published 06th Sep 2011

Mortgages that cover the entire cost of a home return this week.

Three years after being scrapped in the credit crunch, a bank is bringing back the super-size loans that allow first-time buyers to get on the housing ladder without saving a penny.

Such 100 per cent mortgages were axed after lenders were criticised for making irresponsible loans – but the move caused major problems for young people who had relied on them to buy without having a deposit.

And it forced soaring numbers to rent at a time when the cost of tenancies has reached an all-time high.

Yesterday, however, a lender called Aldermore said it will become the first bank since 2008 to offer a ‘deposit-free’ deal.

Set up in 2009, the bank promises ‘a fresh perspective’ on mortgages. If successful, its pilot scheme launched this week could be copied by rivals.

But the offer comes with a significant catch. Buyers need generous parents ready to put their own home on the line to help their offspring.

For, if disaster strikes, and the home is repossessed, the guarantors also face losing the roof over their heads.

Charles Haresnape, managing director of residential mortgages at Aldermore, said: ‘First-time buyers have become disenfranchised from the housing market because of the large deposit demanded by most lenders.

‘This is the single biggest issue facing first-time buyers. It needs to be addressed head on if the UK’s housing market is to have a chance of recovery.’

Young buyers can borrow up to 100 per cent of the property’s value, with a maximum loan of £250,000, without a deposit.

But their parents have to guarantee up to 25 per cent of the property’s value by putting up the family home as collateral.

Step-parents, grandparents and legal guardians can also act as guarantors if they are ready to take the risk.

If the child ends up facing repossession, the parents would have to sell their home or find another way of paying the debt.

The end of 100 per cent deals in April 2008 coincided with a rise in the size of deposits demanded by lenders after the credit crunch hit in 2007.

Typically it used to be tenper cent but today the figure has rocketed to 20 per cent. Currently, only a few 100 per cent mortgages are available from small building societies, which impose several restrictions.

These include living locally or requiring parents to put a large sum into a savings account.

The Aldermore deal is open to all first-time buyers in England and Wales aged over 25, earning more than £10,000 and with a clean credit history. David Hollingworth, of mortgage advisers London & Country, said the deals would appeal to parents who own a home but are not cash-rich.

‘It is for parents who do not have lots of cash but have built up substantial equity in their home due to the increase in house prices, which is exactly what is causing the problem for their children,’ he said.

But Matt Griffith, from campaign group Priced Out, said: ‘This deal reinforces the two-tier property market.

‘First-time buyers need, more than anything else, parents with substantial wealth to access the housing market – either to help out with a deposit or to take on some of the risk.

‘This deal highlights how broken the housing market is for most people.’

Aldermore offers only repayment mortgages fixed for three years at 6.48 per cent.

The term can be up to 35 years but guarantors would only be liable for the first decade.

Source: ' ThisIsMoney '

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