Nearly two thirds of IFAs (66 per cent) who receive mortgage requests are concerned about the risks associated with 100 per cent mortgages, according to research from Opinium.
The research surveyed 202 financial advisers between May 12 and 15 and found that over three fifths (63 per cent) worry about the return of 100 per cent mortgages because of the heightened risk of negative equity.
Similarly, 61 per cent are concerned that 100 per cent mortgages could create a repayment crisis in the event that rates go up.
Alexa Nightingale, head of financial services research at Opinium, said: “It is no doubt that 100 per cent mortgages are likely to help first-time buyers get their feet on the property ladder, and the thinking behind using rental payments as part of affordability checks could no doubt be helpful for those who have only ever rented.
“However, with recent warnings from experts such as Andrew Bailey, governor of the Bank of England, that buyers and banks need to be ‘very careful’ with these types of deals, it’s clear that it’s important to keep the potential risks in mind when considering this type of mortgage.”
In the last month, one in eight (12 per cent) IFAs have seen an increase in enquiries about 100 per cent mortgages, as well as an increase in enquiries about mortgages that use rental payments as part of their affordability checks (13 per cent).
A third (35 per cent) of IFAs that receive mortgage requests think 100 per cent mortgages are a good idea, but despite this 32 per cent IFAs would not recommend them to their clients.
The research also revealed that over a third (38 per cent) would not recommend these mortgages to their family, friends or loved ones either.
Nightingale added: “IFAs will no doubt need to spend time ensuring their clients are up to speed on the possible pitfalls, such as negative equity, and the potential impact of further interest rate rises on their mortgage repayments.”
A deposit-free mortgage, specifically aimed at people renting, was launched by Skipton Building Society earlier this month (May 9).
The product is the first such mortgage to return to the market in over 15 years following the 2008 financial collapse when thousands of borrowers were trapped in negative equity as a result of plummeting house prices.
Brokers have since seen a big uptick in enquiries from first-time buyers following the return of a deposit-free mortgage, but they warned that few buyers will be able to meet the strict criteria.
sonia.rach@ft.com
