Barclays has become the first high street bank since the financial crisis to launch a 100 per cent mortgage in the latest sign of a return to riskier lending.
The bank is allowing some buyers to take out a mortgage to 100 per cent of the value of the property, without needing a deposit. Most banks require at least a 5-10 per cent lump sum.
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Barclays said the mortgage only needed to be supported by a family member or guardian, who must set aside 10 per cent of the purchase price in cash for three years in return for interest. It said the new mortgage was designed to remove the issue of borrowers drawing from the “bank of Mum and Dad” to stump up a deposit.
Ray Boulger, of broker John Charcol, said: “It is the first true 100 per cent mortgage since the financial crisis.”
The move marks a shift back to higher loan-to-value lending reminiscent of the boom times before the crisis of 2008, when 100 per cent mortgages were widely available.
The defunct bank Northern Rock became renowned for its aggressive lending, with its “Together” mortgages offering 125 per cent of the property value.
Regulators have since clamped down on risky lending through regulation in 2014, called the Mortgage Market Review, designed to ensure borrowers can repay — although it does not prohibit 100 per cent loans.
The Bank of England would also be likely to take a dim view of any widespread return to deposit-free mortgage lending.
So far, no other bank has offered such loans. “We haven’t seen a resurgence of 100 per cent mortgages; I don’t think regulation would allow that,” said Charlotte Nelson, of consumer site Moneyfacts.
“I don’t think it’s something many other banks will take on. If they’re seen to be lending at 100 per cent, even with a guarantee, it doesn’t look great. Seeing 100 per cent deals back on the market can come off as negative.”
However, brokers believe the security provided by the family member’s support reduces the risk to Barclays, rendering it akin to a 90 per cent loan-to-value mortgage for the bank.
Mr Boulger said: “It’s really good news a lender is actually coming out with something like this. It protects them in the event things go wrong while making life easier for parents.”
I don’t think it’s something many other banks will take on. If they’re seen to be lending at 100 per cent, even with a guarantee, it doesn’t look great
- Charlotte Nelson, Moneyfacts
But Ms Nelson said: “Guarantor mortgages are a risk. If the borrower stops paying the mortgage, the guarantor’s money will take longer to be repaid. You can probably get better interest rates elsewhere.”
Research by Barclays found that 35 per cent of prospective first-time buyers are forced into asking their parents for help when applying for a mortgage. But of these borrowers, 20 per cent take the money as a gift, without repaying their benefactors.
Instead of gifting the deposit, family members or guardians set up a Helpful Start account, linked to the mortgage, into which the savings are deposited at bank rate plus 1.5 per cent. The borrower can take out a fixed-rate mortgage at 2.99 per cent, on a maximum loan of £500,000.
The launch comes after a report by L&G, the insurer and financial services company, that found lending from parents to help children on to the property ladder will reach £5bn this year — accounting for 25 per cent of all mortgage transactions in 2016.
However, the report warned this type of help is under strain. “The bank of Mum and Dad is not adequate in that it fails to address the needs of those without parental wealth, who nevertheless rightly expect a realistic prospect of being able to buy their own home,” it said.
Challenger bank Aldermore offers a similar product with a family guarantee element but at rates of 5.48 per cent or above with a £1,298 fee attached.
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