100% mortgages double as first time buyers fight extinction

30 October 2007
Britain’s first time buyers may soon be a thing of the past as the next generation of home owners face a life-time of renting - a prospect that worries well over 80 percent of the population according to the latest YouGov poll.

The survey, conducted for the New Homes Marketing Board (NHMB), has found that despite the rising house prices and short supply of available homes, more and more people are determined to get onto the property ladder. This desire has seen mortgage lenders report a huge rise in 100% mortgages as first time buyers struggle to save up their deposits.

Mortgage Advice Bureau (MAB) has said that demand for its 100 percent mortgages doubled in the first nine months of this year, compared with the same period last year while the number of buyers taking out mortgages in excess of 100 percent rose by a further 45 percent.

Other brokers and mortgage lenders have reported a similar trend. The Co-operative Bank has seen a 30 percent rise in 100 percent mortgages as a proportion of its first-time buyer lending since the start of this year while Alliance and Leicester has found a willing market for its new mortgage launched in April which offers loan-to-values of up to 125 percent. Likewise, Abbey, which only entered the market last month, has announced that it has been “pleased with the take-up” of its 100% mortgage deal.

What’s more, increased competition has helped reduce the interest rates on these types of loans, however, the concern is that there will eventually be a premium to pay for these mortgages and this is likely to move higher following the credit squeeze. Already, a number of smaller lenders have taken steps to withdraw products over the last month while rates for others have started creep up.

Brian Murphy, Head of Lending at the MAB, comments: “The need for 100% LTV mortgages has never been more apparent than over the past year. Interest rates have been forced to rise to rein in inflation and slow ever increasing house prices and as a result, buyers have been stretched to the hilt.”

Government incentives, such as scrapping stamp duty on first homes or raising the threshold to £250,000, are being seen as too little too late and first time buyers are being left with little option but to take out huge mortgages if they are ever going to be property owners.

David Pretty, New Homes Marketing Board Chairman adds: “We’re now looking at a situation where perhaps the lost generation of people who can’t afford to buy the home they need today may not be able to afford to rent a decent home in the future either - and that’s a social time bomb.”

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