Bringing back 100% LTV mortgages? Why that's not the solution

“I do not believe that bringing back 100% loan-to-value (LTV) mortgages is the solution to getting borrowers on to the property ladder at this time,” said Mike Brown (pictured), director of Crystal Clear Financial Services.

The idea of 100% LTV mortgages being reintroduced to help borrowers on to the housing market during this difficult time for affordability has been suggested as a solution to the housing crisis, however Brown believes there are schemes better placed to resolve the issue.

“There are many schemes available to borrowers to use, whether it be Help to Buy Equity Loan, or Shared Ownership where deposits can be smaller,” he said.

In addition, there is also the Mortgage Guarantee Scheme which enables households to purchase new build or existing homes. The government will fully guarantee losses from lenders up to 80% of the purchase value - then partially guarantee losses above that, up to 95% of lenders costs for up to seven years. This scheme gives borrowers access to mortgages with a minimal deposit, and the eligibility is open to most purchases up to £600,000 on repayment mortgages.

Read more: A premium to be paid for the New Mortgage Guarantee Scheme?

The scheme is not available for buy-to-let, but there are no restrictions in landlords using it to purchase a new home.

The numerous schemes currently available to borrowers has meant that mortgages are accessible with deposits as low as 5%. However, Brown went on to say that it is important for borrowers to be able to pull together even a small deposit so that they have some “skin in the game” when they commit to buying a property. 

“With property prices at the levels that they are and the economic backdrop at the moment, a downturn in property prices when there is little or no equity in the property could see properties handed back and negative equity emerge,” Brown said.

He added that this could be more damaging and may lead to borrowers taking a course of action that could be negative for them for many years to come.

Brown explained that if affordability is the issue, then he believes there should be some mechanism or scheme to help overcome this to help borrowers move forward. 

“A good example of this is Nationwide’s Helping Hand scheme, which gives borrowers more borrowing power if they take a five-year fixed rate and therefore during that five-year period, borrowers are able to start building equity in a property,” he said. 

Brown believes that if other lenders followed suit across the industry, it would help more borrowers achieve this big step from generation rent to homeownership.  

In order to improve affordability, The Bank of England has suggested dropping the affordability test for mortgage lenders, with borrowers currently subjected to two test recommendations that limit how much they are able to borrow.

The consultation by the Financial Policy Committee over whether to withdraw the mortgage affordability test closes today (May 06).

Read more: Bank of England assessing affordability tests – but can it really win?

Affordability has become tighter in part due to the government propping up housing during the height of the pandemic in the form of relief schemes and the stamp duty holiday, which has meant that house prices have spiked, making them less affordable for first-time buyers. 

“Before we bring back 100% mortgages, it would be good to see other avenues explored first that promote the same end goal but without opening the floodgates to aspirational homeownership,” Brown concluded.