Are 100% mortgages making a return?
100% mortgages used to be things you could get quite easily…
…but then as the credit crunch hit, many mortgage lenders wanted to reduce their risk, and so 100% mortgages died a death.
Now, Coventry Building Society has thrown a lifeline to those of you in negative equity after becoming the first mortgage lender to offer remortgage deals worth 100% of a property’s value.
Negative equity affecting remortgaging
At the height of the mortgage boom, mortgage lenders such as the Abbey, Alliance & Leicester, Northern Rock and Coventry Building Society offered those of you with mortgages of up to 125% of the property value.
As house prices have fallen around 10% since this time last year, many of you are now finding yourselves in negative equity. Unable to remortgage due to the lack of equity, you have had little alternative but to go onto the Standard Variable Rate (SVR) of your current mortgage lender; this is because all mortgage lenders are now demanding equity of at least 10% or even 40% for the most competitive deals. So, not only are you unable to remortgage but you cannot afford to sell up either.
Good news for Coventry customers?
If you are a Coventry customer who took out a mortgage of up to 125% of your property’s value, you would have been forced to revert to their standard variable rate (SVR), currently 4.74%,when your current mortgage deal expires.
Now Coventry is offering those of you coming to the end of your mortgage deal a new 5 year fixed rate deal at 4.99% worth up to 100% of your property’s loan-to-value (LTV); the deal has no booking or arrangement fees.
The deal is available to any existing Coventry mortgage customer, although it is mainly aimed at you “MOREgage” customers who were able to take out 95% LTV secured against your home as well as an unsecured loan worth 30% LTV. Most of these deals were taken out in 2006 and 2007. But with Government figures now showing that house prices are 10% lower than 12 months ago, many of you are now likely to be in negative equity.
In comparison with some of the 5 year fixed rate mortgages currently on offer on the market, the 100% mortgage has to be seen as a good deal, especially in the current economic climate. The alternative for most of you would be to revert to Coventry’s standard variable rate of 4.74% we mentioned earlier, but whilst this might be slightly cheaper at present, it does not offer any certainty at all with regards to the future.
A pragmatic 100% LTV solution?
This new scheme allows this principle of prudent lending to continue to those of you who wish to lock in affordability in a way which is simply not possible with a variable rate. It is hoped that following this move, some of the other mortgage lenders will consider following the example set by the Coventry, and offer pragmatic solutions to those of you coming to the end of your current mortgage deal.
Northern Rock, Abbey and Alliance & Leicester were among the other lenders offering 125% mortgages, but none of these lenders has so far offered any remortgage deals to those of you in negative equity.
Aaron Strutt of broker Chase De Vere Mortgage Management commented on Coventry’s move, saying:
“This is great news for Coventry customers. Homeowners in negative equity have been frozen out of the mortgage market and are being forced on to their lender’s standard variable rates. SVRs may be low at the moment due to the base rate falling to 1% but they will inevitably go up again, which could mean large increases in borrower’s monthly repayments. The opportunity to fix at a sub 5% rate will be very welcome and will provide some much-needed peace of mind.”
So, this may seem a pragmatic solution from Coventry, but the question is will other lenders follow their lead and offer some peace of mind to their mortgage customers?
What do you think of the move from Coventry? A sensible step, or too early to be reintroducing 100% mortgages?
Let us know your thoughts in the comments below.
(Please note that articles on Money Hospital do not constitute regulated financial advice. The articles are intended to provide general personal financial information, and are based on journalistic research. We urge you to consult an Independent Financial Adviser (IFA) before making any important decisions about your finances. All rates are correct at time of printing but are subject to change without notice.)