Concern as 100% mortgage deals double

The number of first time buyers opting for 100% mortgages has more than doubled over the past year, according to the Mortgage Advice Bureau (MAB).

Rapidly increasing house prices are the major contributor, forcing first time buyers to borrow increasingly large sums to buy their first home.

The MAB’s figures show 549 buyers used 100% LTV mortgages in the first nine months of 2006, a number which has grown to 1,209 in the first three quarters of 2007.

Research also found a 45% increase in the number of buyers using mortgages which offer more than 100% of a property’s value, up from 1,394, to 2,022.

Brian Murphy, head of lending at the MAB, comments: “The need for 100% LTV mortgages has never been more apparent than over the past year. Interest rates have been forced to rise to rein in inflation and slow ever increasing house prices and as a result, buyers have been stretched to the hilt.”

However, the MAB is urging borrowers to consider the repercussions of such risky financing.

Products offering loans of 100% or more often carry higher interest rates of around 1% more than a 90% mortgage, according to the MAB.

The group also warns lenders will often need to pay a higher lending charge, adding around £2,000 or more to the cost of the mortgage.

The MAB adds buyers with 100% LTV mortgages have no equity to fall back on, meaning they would owe their lender a considerable amount if the value of their home declines.

Murphy says slowing house prices should allow earnings to catch up and reduce the number of 100% LTV products, but predicts they will continue to be popular for some time.

He adds: “Whilst the cautions highlighted above should be heeded when considering borrowing this amount, a visit to an independent broker can ensure that the individual embarks upon a mortgage deal that they will be comfortably able to repay.”

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John Bakie
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