The return of sub-prime loans? Building societies back 100% loan-to-value mortgages

11/06/2018

Building societies have backed revisiting the case for 100% loan-to-value mortgages.

The suggestion is likely to send shivers down the spines of those who bought at the height of the last housing boom and soon found themselves in negative equity and unable to move - or, at worst, handing back the keys.

It has come as part of a report commissioned by the Building Societies Association which looks at alternatives to first-time buyers having to rely on the Bank of Mum and Dad.

The trade body warns that relying on parents is not an option for everybody and cautioned that there is a risk of families "jeopardising their own financial futures".

Instead, the report suggests revisiting the case for lending up to 100% LTV mortgages "within appropriate parameters".

The report proposes exploring how technology such as open banking - giving automatic access to live account information - can feed into more accurate predictive underwriting to support this type of lending.

It also suggests tax incentives such as an Inheritance Tax exemption for parents transferring wealth for their child to purchase a home, and Stamp Duty cuts for older home owners to downsize.

Robin Fieth, chief executive of the BSA, said: "Home ownership remains a fundamental ambition for the majority of people.

"Against the challenging backdrop of high prices, a woefully inadequate supply of homes and a growing intergenerational divide, new ideas and strong debate are essential.

"Family help - the so-called Bank of Mum and Dad - is great for those fortunate enough to have this option, but innovations in underwriting could help all potential first-time buyers."

Analysts were not too keen on the proposals.

Commenting on the report, Tim Bennett, partner at broker Killik & Co, said: "This Christmas, British mortgage lenders may be set to resurrect an old financial services pantomime villain - the 100% home loan. This is a bad idea.

"With house prices stalling, or falling, in real terms across many parts of the country, any zero-deposit buyer risks being plunged immediately into negative equity.

"Worse, they will be leaning into the headwind of rising interest rates.

"The fact that an eligible buyer may have an inheritance coming, or be on a lucrative career, doesn't magically justify them sinking good money into a bad decision.

"Faced with an uncertain economic backdrop, the prospect of a messy Brexit and an unpredictable political situation, any measure that seeks to stimulate housing demand by encouraging highly-geared buyers into a rocky property market, looks rash at best.

"My advice in festive season 2018? Watch out - the 100% mortgage is behind you."

https://www.bsa.org.uk/BSA/files/da/da1a7288-7755-43db-9a5d-69687ef84416.pdf