First-time Buyer  

Warning against return of 100% LTV mortgages

Warning against return of 100% LTV mortgages
Gareth Fuller/PA

A partner at advice firm Killik & Co has warned against 100 per cent loan-to-value mortgages, after renewed calls to revive these deals.

Tim Bennett, partner at London-based Killik & Co, advised against the return of 100 per cent home loans, after the Building Societies Association (BSA) recommended building societies and lenders should  "revisit the case" for such deals within "appropriate parameters".

The BSA called for the return of 100 per cent LTV mortgages as part of their work to address the role of intergenerational lending in the mortgage market.

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Mr Bennett said: "This Christmas, British mortgage lenders may be set to resurrect an old financial services pantomime villain - the 100 per cent home loan. This is a bad idea.

"With house prices stalling, or falling, in real terms across many parts of the country, any zero-deposit buyer risks being plunged immediately into negative equity - where the value of their home is less than the debt secured on it.

"Worse, they will be leaning into the headwind of rising interest rates.

"The fact that an eligible buyer may have an inheritance coming, or be on a lucrative career path - two categories mentioned specifically by the Building Societies Association- doesn’t magically justify them sinking good money into a bad decision.

"Faced with an uncertain economic backdrop, the prospect of a messy Brexit and an unpredictable political situation, any measure that seeks to stimulate housing demand, by encouraging highly-geared buyers into a rocky property market, looks rash at best.

"My advice in festive season 2018? Watch out – the 100 per cent mortgage is behind you."

The war of words erupted after a report, titled Building on the Bank of Mum and Dad, suggested fintech solutions, such as open banking, could facilitate increasingly accurate predictive underwriting to support full value lending.

The research found most underwriters in the sector were not "philosophically averse" to 100 per cent lending, but the associated risk was well appreciated.