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Debunking the 100% mortgage myth

Ashley Pearson, National BDM at The Loughborough for Intermediaries

The subject of a 100% mortgage tends to generate some heated debate, which is only natural given its somewhat chequered history. A fact which was certainly evident when Skipton Building Society launched the first-of-its-kind 100% mortgage product aimed at renters in May this year.

While some welcomed the move as a much-needed innovative solution to help address the specific needs of renters and first-time buyers (FTBs) looking to get a foot on the property ladder, the reception from others was a tad lukewarm to say the least. However, it remains important to remember that there is often more to this type of mortgage than meets the eye. After all, this 100% figure can be achieved in many different ways, from many different sources.

Helping to debunk the myths surrounding the product and keeping up to date with market developments, is where brokers play an increasingly crucial role in helping to educate FTBs and other borrowers struggling to raise a deposit about the many different variations of the product that exist in the market today.

For example, Loughborough Building Society has a suite of family assist mortgage products which includes a family deposit mortgage that allows a borrower to take out a 100% LTV mortgage product and have another family member (typically parents) guarantee a deposit of up to 20% of the purchase price.

This can be done by placing a collateral charge against the depositor’s own property or as a cash lump sum into a savings account offering a 3% interest rate, both of which are released after seven years or sooner if there is enough equity in the property when it’s time to remortgage.

In the current market, this could prove to be a viable alternative for parents and family members gifting a deposit as not only will they get their money back; they’ll earn interest on their money and still help their child buy a house. This represents an attractive proposition considering recent figures from L&G which highlighted that the average amount of money gifted by family members is expected to reach £25,600 this year.

This type of mortgage is also available through our Joint Borrower Sole Proprietor (JBSP) Deposit Guarantee product which enables a family member to provide a 20% security against their house or as cash held in a 3% deposit guarantee account, while also boosting the applicant’s borrowing capacity by using family members’ income for affordability purposes.

In most cases, this will be the borrower’s parents, but other family members such as grandparents, siblings and aunts and uncles can also be listed on the application, although the property will only be legally owned by the occupier.