buy-to-let mortgage uk rental yields

The return of the 100% mortgage?

Lenders need to bring back 100% mortgages to help first-time buyers and combat falling home ownership in the UK, according to the Building Societies Association.

The BSA report includes a range of recommendations to assist first-time buyers wanting to enter the property market. However, it is the burden placed on parents to help young people buy their first home that has provoked the call for mortgage providers to reconsider their stance on 100% mortgages.

Over half of first-time buyers reliant on the Bank of Mum and Dad

Buying a home as a first-time buyer is a significant challenge for young people, so it’s no wonder that 59% of younger homebuyers are reliant on parental assistance. Moreover, 87% of BSA members think that the Bank of Mum and Dad will continue to grow in importance over the next ten years.

Critics remain wary

In response to the BSA report, critics have warned that due to the higher interest rates charged, borrowers are more likely to default on a 100% mortgage. Following the 2008 crash, the Bank of England imposed stricter lender criteria, but the collapse of Northern Rock, who’s 125% mortgages were instrumental in its fall, is still very much in people’s psyche.

Will lenders take the risk?

The BSA report, aptly titled Building on the Bank of Mum and Dad, suggests that fintech solutions, such as open banking, could make risk assessments more accurate and support full value lending at less risk.

The BSA thinks that building societies could offer 100% mortgages for a small percentage of first-time buyers, without compromising their overall lending book, if certain strategies and parameters are put in place:

  • Mitigate risk by only offering to borrowers in certain professions, those with a high probability of substantial inheritance or borrowers with parental guarantees.
  • Take advantage of low interest rates to offer 100% loan to value borrowing, and use overpayments in the early years to reduce the LTV quickly.
  • Mortgage Indemnity Guarantee insurers provide cover for loans over 95%.

The question is whether other lenders agree? The report found that most underwriters are not ‘philosophically averse’ to 100% lending, but the associated risk is well appreciated.

The report states, ‘innovations in underwriting could help all potential first time buyers’ and no doubt it would help take the pressure off of mum and dad too.

Self-certified Sophisticated Investor

Please read

I declare that I am a self-certified sophisticated investor for the purposes of the restriction on promotion of non-mainstream pooled investments. I understand that this means:

I am a self-certified sophisticated investor because at least one of the following applies:

I accept that the investments to which the promotions will relate may expose me to a significant risk of losing all of the money or other property invested. I am aware that it is open to me seek advice from someone who specialises in advising on non-mainstream pooled investments.

High Net Worth Investor

Please read

I make this statement so that I can receive promotional communications which are exempt from the restriction on promotion of non-mainstream pooled investments. The exemption relates to certified high net worth investors and I declare that I qualify as such because at least one of the following applies to me:

STAY AHEAD OF THE MARKET

Sign up for first access to new developments and exclusive property investment opportunities.

We send limited and targeted emails on new launches and exclusive deals which best fit your areas. We are trusted by over 30,000 active buyers as their source for new stock.

  • New property developments
  • Professional market reports
  • Property deal alerts
  • Development updates
Manchester property investment

FIRST FOR NEWS AND KNOWLEDGE.

Receive trending news straight to your inbox and stay up to date on all of the property market trends and advice.

Established since 2005 we are a leading voice of authority and commentary on the UK property market. Our news is trusted by Apple News & Google News.

  • UK housing market
  • Mortgage & money
  • Buy-to-let landlords
  • Guides & advice

Talk to us

Speak to our UK property experts today:

 

+44 (0) 333 123 0320

Open from 9am-6pm GMT

 

+852 6699 9008

Open from 9am-6pm HKT