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Are 100% mortgages making a return?

Feb 19, 2009

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 So Switch 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.)

22 Responses to “Are 100% mortgages making a return?”

  1. goc Says:
    Feb 23, 2009 at 8:59 am

    How does this help anyone with negative equity??? This mortgage is up to 100% of property value….

  2. Phil Says:
    Feb 23, 2009 at 9:37 am

    Dunno if I am missing something here but someone who borrowed up to 125% 2yrs ago is not now going to have a mortgage of up to 100% ?!?!?!?

  3. Property Auctions Says:
    Feb 23, 2009 at 9:47 am

    I agree, this will only help those with reduced equity – not negative (unless they can get an unsecured loan for the negative part, and do the rest on this mortgage). Also it’s only aimed at their existing customers, and has a relatively high IR.

  4. Mhairi Says:
    Feb 23, 2009 at 11:24 am

    Well, personally, I welcome the idea. Not being a CBS customer I won’t benefit until they open it to others, but I think it could save many thousands of people from being repossessed. Admittedly, not those in negative equity… However, if you’re at the end of your deal and your payments are set to rise by ~£100/mth (at least), this might be the lifeline many people need. I just hope other lenders have the sense to do the same. I’m not talking reintroducing 100% mortgages to home buyers, just to remortgage customers who need the help to keep monthly payments at a minimum.

  5. Rachael Says:
    Feb 23, 2009 at 11:28 am

    My understanding from this (as a current Coventry MOREgage holder) is that because the mortgage was for 95% and the unsecured loan was up to 30%, it is just the mortgage that is to be remortgaged. So the loan continues as it was (on the current variable rate, which is most likely lower than new loan rates) and the remortgage will cover up to a 5% drop in home value. So yes, there may be a deficit still that needs to be paid off somehow, but not as high as it may sound if it was for 125% originally.

  6. Halal Mortgage Says:
    Feb 23, 2009 at 12:27 pm

    I can’t beleive were getting back into the problems that first started this crisis!!

  7. Ros Says:
    Feb 23, 2009 at 12:53 pm

    I would like to see something being done to support thousands of people who are coming to an end of their mortgages but borrowed at 96% two years ago on interest only (and paid thousands for because I was above the 95% LTV ration at the time too). It’s not a return to the problems that caused this but support for those who find themselves in a now untenable mortgage situation. I have never missed a payement for anything – be it a loan, credit cards or mortgage – in 25 years, but in the Autumn when my 2-year fixed 100% mortgage sees me transfering to the SVR of 5.19% I will no longer be able to meet my obligations with credit card bill interest rates having rocketed too. I didn’t consider I was borrowing beyond my means 2 years ago but am having to seriously consider an IVA or worse come October. Post divorce (not planned 2 years ago!) I have tried to sell the house (no luck) and have now moved into a negative equity situation, and I really don’t see any options for me come October. My ex is not working and I receive no maintenance. I have a relateivly high paid job so I’m not eligible for benefits. I have 3 children and high debts and until now have always paid my way. This doesn’t make me a bad person, but where do I go for help? At the moment it does rather feel like the financial institutions have pulled the rug out from under me!

  8. Property Auctions Says:
    Feb 23, 2009 at 2:57 pm

    Ros – this is cold comfort for your unfortunate situation, but here is who to blame:

    The bubble every increasing house prices crafted by our ‘world leaders’ including and especially Gordon Brown combined with a media frenzy has convinced far too many people to take on debt well beyond their means. People were looking at short term cash flow (i.e. can I pay the interest?) rather and forgetting financial history (several stock market and housing crashs of the 20th century, variable interest rates etc.). In 2002-2006 few people worry about borrowing 100k, 200k, 300k, whatever when house prices are increasing, not caring that at some point they may decrease, causing banks to become wary of lending (as they have a decreasing amount of security) and resulting in tightening credit conditions. Blame TONY BLAIR and GORDON BROWN and the BANK OF ENGLAND for this fine mess! Also add the FSA to that. Yes you can blame the banks, but they are just being greedy bastards as you would normally expect, so fair play to them they are there to make money. Our elected goverement are there to serve our interests, and they haven’t in the case of the debt and housing bubble. The real problems happened between 2000-2006, but few people noticed. The symptons are now showing! We are now being cured of the disease by tightening credit conditions. Sadly the cure is more painful than the disease (analogy: like coming off hard drugs).

  9. john Says:
    Feb 23, 2009 at 9:58 pm

    depending who it is with you may not require the property to be revalued which means you can say you need a 100 percent mortgage on what your due

  10. John Pokora Says:
    Feb 23, 2009 at 10:14 pm

    For those that can remember the last time we had serious negative equity lenders allowed borrowers to move and transfer their negative equity onto a new property provided they could afford the extra borrowing. There were no special deals available then just variable rates at about 10.00%. Guess what? The market recovered as it will do again. At a time when unemployment is a major problem people may need the ability to be mobile which means moving home to find employment in another area. Negative equity will prevent the working population from being mobile.
    The lenders will have to deal with this issue in order to prevent more repossessions. I don’t see there is a problem with 100%+ lending for the right borrowers or circumstances.

  11. matthew knight Says:
    Feb 24, 2009 at 4:30 pm

    Why is it that when the Base rate is so low that many many new mortgages are still unaffordable. The banks are putting so many brick walls in the way. The LTV rates have been drastically reduced, meaning a bigger deposit.Heavy penalties for paying off early.Northern Rock want 4%.A fee for obtaining a mortgage.12 months ago there was no fee. The banks have been told to lend money ,and they are ,but they are making it very difficult by imposing high interest rates and penalties. We all know what Rhymes with Banker!!!!!

  12. goc Says:
    Feb 26, 2009 at 9:19 am

    To Mr Property Auction- who to blame? how about the person who took out the mortgage? I’m sorry but if you can’t afford to pay 5.19% then you clearly borrowed way, way too much. 5.19% is a very low rate. even in the last two years we have seen mortgage rates at well over 6%, and going back to the 90′s we had rates at 10-12%. So if you cant pay 5.19%, well you took one hell of a gamble, and guess what? It didn’t pay off.

    why is that people don’t think about what could happen in the future, and then look to blame everyone else when situations change?

  13. Rich Says:
    Feb 26, 2009 at 7:27 pm

    bring back 100% mortgages i would be a first time buyer have not got any savings yet i can afford rent of 650 pcm and i know people paying less on there 100% mortgages they got 2 yrs ago i can afford the payments of a mortgage just have no savings to be able to get one and i bet im not the only one

  14. Vinny Says:
    Mar 5, 2009 at 11:09 pm

    Hey Rich…..you’re not the only one…….I pay rent of £850pcm and never miss a payment. I too have no savings etc. I would welcome 100% mortgages so I could provide a home for my young family. I would be first at the bank, and I am looking now.

  15. Ros Says:
    Mar 9, 2009 at 1:47 pm

    Hey Goc,
    I am looking for anyone to blame. At the time I took my mortgage I did it on a 2-year tracker rate not a fixed variable. I used an financial advisor (not independent which was foolish in hindsight) and I made sure I could pay the variable rate after 2 years. I did those sums to the best of my ability. Since then my situation – both personal and financial -has changed dramatically in ways I couldn’t have foreseen. I’m not looking for a scapegoat but there does not seem to be much practical help out there! I need to move house but I’m unable to do so. All bright ideas welcome!

  16. suzie@ 100% mortgage Says:
    Oct 5, 2009 at 12:49 pm

    I think these promotions are good to offer people but we need more of them to help people with no money.

  17. Emma Says:
    Oct 12, 2009 at 9:12 am

    So this helps those already with mortgages, what about those of us who dont have/cant get mortgages, when are we going to see some real help for us.

    For example the homebuy direct scheme that everyone thought would be amazing, and help hundreds upon hundreds of first time buyers get on the ‘property ladder’ cant be that amazing when the allocated funds set aside for 09/10 tax year were gone in the first 2 months of 09!

    What chance do people have of buying houses and in effect aiding the economy when we’re continuously faced with hurdles.

    When are the first time buyers going to get some real help????

  18. sandra Says:
    Oct 12, 2009 at 11:33 am

    I think it is the best news for a while to help people struggling already and who may otherwise be forced into a higher rate – but hopefully it will be open to outsiders and not just their own customers and also other lenders will follow suit. As a worker in the property market, if no-one takes initiatives to help the public then we are all doomed to a landscape full of empty properties, families living in hostels etc. and the country will beocme full of investors taking advantage of repossessions of people’s homes.

  19. Bill Green Says:
    Oct 19, 2009 at 10:55 pm

    I am in that fortunate position of now being mortgage free and live in an area where property prices didn’t fall that much and are now slowly but steadily recovering. However, my son and his family are in an awful dilemma. They live in the Wiltshire area and he came out of the forces, started with a good civilian job and looking forward to buy their own first home. They currently pay in excess of £850 rent on a three bedroomed house and would dearly like to buy their own. Becuse of the deposit situation they cannot get a mortgage they can afford. Accepted the ‘Bank of Mum & Dad’ is always a reliable fall back within limits. When are we going to see real help for these young couples with 100% mortgages competitively available that can be obtained and repayable over periods say of 30 or 40 year terms like we have in other major countries ie USA, Australia etc.
    I fully accept that the final cost of a 40 year mortgage compared with a traditional 25 year mortgage would be greater but the majority of people would see a least one move in that time where the term adjustments can be made to their benefit.

  20. TC Says:
    Dec 11, 2009 at 5:20 pm

    Well coming to the end of my 2 year fixed rate on a 100% mortgage early in 2010 and as the base rate is low will potentially save around £400 a month as currently paying just under £1000 a month. We are a young family who work hard but there is no way that we can have any savings as we not blessed with Daddy paying it for us. We work hard and the only solution is for us to pay as much off the mortgage before the base rates shoot up with the monthly saving we have. I find it ridiculous that banks were jumping over you to sign up for the 100% mortgages but where is the support for the 95% and 100% re-mortgagers now, none at all. Come on banks and providers get some re-mortgages deals on the table and save people loosing their homes.

  21. apex Says:
    Mar 8, 2010 at 12:42 pm

    Santander should re-introduce their 100% re-mortgaging deals to help peolpe keep there homes for those who took out a 100% mortgage before all this mess happened. Creedy, even Natwest have re-introduced this. Santander all they do is try selling you different products I.E New current Account or Home Insurance. Yeah that really helps when I want to try and sort a mortgage out and to keep my property.

  22. TC Says:
    Apr 13, 2010 at 12:49 pm

    We are with Santander to and stuck on the variable rate after our 2 year fixed rate 100% mortgage expired this year. I totally agree with apex’s comment that Santander should re-introduce their 100% re-mortgage deals. I do not want a new bank account or insurance but maybe if they sort our their 100% mortgages then maybe I would think about it. A Bank this size should take a note from Natwest and re-introduce the 100% Re-mortgage offers.

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