Lending expert believes 99% and 100% deals benefit few
As lenders step up their efforts to take a share of the first-time buyers’ market, offering loans covering all - or almost all - of a property’s price tag, experts have feverishly debated the pros and cons of small deposit schemes.
On the face of it, the trend for 99% and 100% mortgages in a cost-of-living crisis might be regarded as a Godsend for aspiring property owners, but the jury is still out on whether taking on such a big financial commitment is the highway to heaven or hell for borrowers.
Concerns have been voiced that such attractive initiatives could potentially leave some first-time buyers in negative equity, given uncertainty in the property market - a suggestion lenders have refuted.
But Jon Cooper (pictured), head of mortgage distribution at Aldermore Bank, believes that for all of the hullabaloo surrounding the products, they will serve only a modest numbers of borrowers.
“There has been plenty of noise around 99% mortgages recently,” he told Mortgage Introducer. “Whilst this is a solution for a small cadre of borrowers, 1% deposits aren’t going to be attractive to all FTBs. It’s not a magic fix or a one-size-fits-all solution.”
Cooper believes that - far from being tempted to take an apparently easy option - fledgling property owners are wary of saddling themselves with too much debt.
“The reality is that many FTBs might not wish to put down just 1% or 2%,” he reasoned. “Many will want to make a greater dent in their mortgage from the off. Bank of England data shows just 0.25% of mortgages were over 95% LTV in 2023 compared to 6% in 2007.”
And then there’s the other omnipresent issue in the first-time buyer market – affordability. Having the means to pay off a mortgage, even those schemes which require small deposits, can still be a struggle for many, Cooper believes.
“Affordability testing will still likely apply,” he pointed out, “and the affordability tests might be prohibitive for the vast majority, except for those FTBs with significantly higher household incomes.”
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Though it is – in Cooper’s words - “a tricky year for the market”, he believes aspiring homeowners may be encouraged that inflation is falling and that the Bank of England base rate has quite possibly peaked.
“We are seeing confidence and stability return to the property market and home purchases revitalised, with figures from the ONS showing that house buying affordability has improved in 75% of local authorities in England and Wales,” he noted.
“Property website Zoopla also found that the number of house sales agreed is currently 9% higher than a year ago. Looking ahead, at least one cut to the base rate is looking likely in the months to come. This would offer some relief and mean that interest rates can start to come down further, which would in turn stimulate the mortgage market and make rates more competitive. That’s a tantalising prospect for both prospective homeowners and those needing to remortgage soon.”
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Aldermore, which offers specialist lending and savings accounts, points to data in its recent First Time Buyer Index. Over half (57%) of prospective first-time buyers say the rising cost of living has had an impact on them being able to buy a property, while 55% are currently seeking to raise a larger deposit than initially intended due to the recent changes in the property market. Cooper urges greater government support for them.
“Aldermore is putting its money where its mouth is here,” he stated. “We realise it’s specialist lenders that can, and must, make a tangible difference. That’s why we recently broadened our range of mortgages targeted towards first-time buyers, as well as the self-employed and those with less than perfect credit histories.
“We’re now offering more 95% LTV mortgages to a wider range of potential customers, and I’m thrilled that we’re stepping up to empower more people to get onto the property ladder.”
Cooper sounded a note of optimism, predicting that in the coming months the market would start to see some rate reductions. An increasing number of properties were also becoming available, he said.
“If the macro-economic landscape plays out as expected, we should see an increasing trend in mortgage transactions,” he observed. “The base rate by the middle of 2025 could - emphasis on could - be around 3.5%, which will open up the owner occupier market, along with an increased volume of BTL business as landlords leverage portfolios for future purchases.”
