More misery as market announces death of the 100 per cent mortgage

20 February 2008 / by Verity G
First-time-buyers will now have to find a deposit after the 100% mortgage was scrapped yesterday by a number of high street lenders.

In what appears to be a complete u-turn from last year's heavy selling of zero deposit home loans which saw a third of lenders offer mortgages of 100 per cent or more, four of the biggest lenders have withdrawn their deals.

The knock-on effect of the global credit crunch, coupled with a stagnant housing market, has seen both Alliance and Leicester and Abbey pull the plug on their contentious 125 per cent deals, leaving newly nationalised Northern Rock as one of the only lenders still offering this type of loan.

The 100 per cent plus mortgages grew in popularity during last year's property price boom when desperate first time buyers and cash-strapped singles opted for the so called 'super-size' mortgages to help cover legal fees and stamp duty.

The mortgages offer up to 95 per cent of the value of a home as a standard mortgage, as well as a further 30 per cent on top as an unsecured personal loan , capped at either £25,000 or £30,000. However, while these monster mortgages have helped many borrowers get onto the property ladder, they are instantly plunged into negative equity owing more to their lender than their homes are worth.

Louise Cuming, Head of Mortgages at, explains: "With so many prominent lenders exiting the 100 per cent mortgage market this week consumer confidence is going to be knocked again. Lenders including Alliance and Leicester and Coventry and Godiva have always ensured stringent credit checks are carried out on borrowers applying for 100 per cent plus mortgages.

"Therefore, we must conclude the rationale for pulling out of this part of the market is due to concerns over falling property prices. First time buyers will be hit hardest, with repayments likely to shoot up when they come to remortgage. At a time when consumer confidence is so low, it is disappointing that lenders are adding to the panic."

Despite the withdrawal of 100 per cent mortgages, it appears the home loan market has shown its resilience after the Council of Mortgage Lenders (CML) reported that gross mortgage lending rose to an estimated £26.5 billion in January, an 11 per cent increase from the £23.9 billion recorded in December.

CML Director General Michael Coogan comments: “Gross lending held up well in January. However, there is considerable uncertainty in the housing market at the moment and we expect lending volumes to be lower in the coming months.

“It is likely that demand will be stronger for remortgaging than for house purchase in the short term. Home buyers might be more inclined to transact if their moving costs were reduced and the government has the opportunity to address this by raising stamp duty thresholds and cutting the rates of stamp duty in next month’s Budget.”

However, the concern is now that many recent borrowers will be stung with huge repayments when their current deals end. Julia Harris, analyst at adds: “With house prices starting to cool and some commentators predicting a further drop as the year unfolds, perhaps it is time to make the most of the current high savings rates and save for that deposit."

© Fair Investment Company Ltd