There have been headlines in the news over the past couple of weeks hailing the new 100% mortgage now being offered by Barclays Bank. Although there have been banks/building societies offering these loans for a few years now, Barclays are the first major high street bank to offer this mortgage deal resulting in the extensive media coverage it has received.
Critics have been quick to question whether this is a good idea from Barclays as it shows many signs of the type of lending that contributed the 2008 crash. As explained by Unbiased: “back before the financial meltdown of 2008, it was commonplace for lenders to grant mortgages with no deposit at all – or even mortgages that loaned more money than the property was currently worth. Of course everyone knows how that ended, which is why mortgage providers ever since have been more strictly regulated and wary of making ‘bad loans’”.
However with all the recent tax changes and the slowing down of the market since the end of March, many are saying this is a positive step, including Robert Nichols who says how “the market has taken a bit of a battering recently with tax and legislative changes, so anything that stimulates growth is welcome”.
The way the mortgage works is that a temporary deposit is taken by the bank. The deposit is 10% of the purchase price and will be kept by the bank for 3 years earning 2% per annum interest. By doing this Barclays are tapping into the ‘Bank of Mum and Dad’ whereby in recent years more and more deposits for first time buyers are being funded by their parents. This deposit is kept to cover against a number of things, including missed payments. After the 3 years this deposit can then be withdrawn leaving 100% of the property to the person with the mortgage.
Although advertised as 100% mortgage it does seem to be a much stricter process than pre-2008. The FT says that “Barclays ‘family springboard’ mortgage has been heralded as a return to the days of high-risk home loans. But its requirement that parents put 10 per cent of the purchase price in a special savings account means it is arguably better described as a 90 per cent loan — and a far cry from the types of mortgage deals that were offered in the go-go years running up to the financial crisis”. This loan is certainly not for everyone, but exercised with caution, and after taking professional advice, this could be a useful option for some people looking to get on the property ladder.
References:
https://www.unbiased.co.uk/news/its-back-the-return-of-the-100-mortgage/5632
https://www.estateagenttoday.co.uk/industry-views/2016/5/barclays-no-deposit-mortgage-a-good-idea
http://www.ft.com/cms/s/0/c25defe6-12af-11e6-91da-096d89bd2173.html#axzz48oOXZfND
