Thu 05 May 2016
The 100% mortgage is back for the first time since the financial crisis struck.
Barclays is offering a three-year fixed rate deal at 2.99% for buyers with no deposit but who earn more than £50,000.
But there is a catch: family or friends of the borrower will have to deposit the equivalent of 10% of the property’s purchase price in a savings account and keep it there for three years.
They will receive the money back at the end of the three-year period with interest equivalent to the base rate plus 1.5%.
Why is this happening?
Barclays said it had made the changes to its Family Springboard Mortgage to celebrate the third anniversary since it was first launched.
The mortgage, which became available in 2013, previously required borrowers to put down a deposit of at least 5%.
The group said it hoped that by removing the need for a deposit, the mortgage would be accessible to a greater number of first-time buyers.
It added that its data showed customers who had taken out its Family Springboard Mortgage in the past had a very low default rate, often due to pressure from family members to keep their finances on track.
Who does it affect?
The move will help first-time buyers who have high salaries but have not been able to put together a deposit.
Changes to the mortgages terms and conditions will also benefit those who need to borrow a high income multiple, with Barclays prepared to advance 5.5 times their income to people earning more than £50,000, up from 4.4 times previously.
The mortgage is also good news for parents, as it enables them to help their children to get onto the property ladder without having to give them a significant chunk of their savings.
Legal & General recently said parents were collectively expected to hand over £5bn to their children to help them get on to the property ladder this year.
Sounds interesting. What’s the background?
Many lenders offered 100% mortgages in the lead up to the financial crisis, while Northern Rock was prepared to advance 125% of a property’s value.
But the deals were pulled in the wake of the crisis, when banks were accused of irresponsible lending and stoking house price inflation.
The loans are considered to be high risk because if house prices fall, borrowers instantly find themselves in negative equity.
As a result, it is thought people will be less committed to keeping up with repayments if they lose their job or run into financial difficulties.
But the Barclays deal is different to the old 100% mortgages, as parents are effectively proving a guarantee worth 10% of the property’s value.
The rate of 2.99% compares well with deals that require a small deposit, with HSBC offering a rate of 2.68% to people borrowing 90% of their property’s value, while The Coventry has one of 2.79%, also for those with 10% to put down.