Lenders Introduce Mortgages With Zero Deposit: Will a Major Bank Adopt This Strategy?
Two lenders, April Mortgages and Gable Mortgages, have launched home loans that cover the entire purchase price, eliminating the requirement for a deposit upfront. These no-deposit mortgages are scarcely available in the current market, with most lenders demanding at least a 5% deposit or more, and those offering lower deposits typically requiring a parent's guarantee.
The newly introduced mortgage products have minimum income requirements. April Mortgages requires a £24,000 annual income to qualify for their deal, while both lenders impose a need for borrowers to fix their mortgage for either 10 or 15 years. The initial interest rate starts at 5.99% for April's mortgage, translating to a monthly payment of £1,288 for a £200,000 mortgage repayment over 25 years. Gable Mortgages boasts two products – a standard mortgage and one tailored to new-build buyers purchasing from specific developers – all offered on a five-year fixed term.
The interest rates for Gable's standard mortgage and new-build mortgage are 5.95% and 5.65%, respectively. Both borrowers must be at least 23 years old, and the minimum loan required is £125,000. They must also engage a mortgage broker to process their application.
These mortgage offerings signal both creativity and caution within the lending market, according to Ravesh Patel, director, and senior mortgage consultant at Reside Mortgages. For renters encountering difficulties saving for a deposit, these mortgages could provide an essential solution, particularly those with solid incomes and unblemished credit records. However, Patel stresses that these mortgage products cater to a niche segment of the market and are beneficial only under the right circumstances.
Major banks are seemingly eager to attract borrowers as rates descend, and several have eased their affordability rules to facilitate larger loans. The number of mortgage deals for those purchasing with a 5% deposit has recently reached its highest level since the financial crisis, indicating a willingness among lenders to expand offerings and compete for customers.
Skipton Building Society previously introduced a product that enables borrowers to defer their mortgage repayments for the first three months, while April Mortgages began offering home buyers and homeowners the opportunity to borrow up to seven times their annual salary. Given the swift changes in the market, it is not far-fetched to expect a major bank to jump on the bandwagon and propose a 100% mortgage soon. However, according to Patel, political or public pressure to support first-time buyers may be essential for a significant bank to enter the market, likely in a carefully controlled format with specific borrower profiles.
The no-deposit mortgage offerings of April Mortgages and Gable Mortgages hark back to the pre-2007 lending era, raising concerns about potential risks similar to those that precipitated the financial crisis. However, Patel points out that contemporary lending standards are far more stringent, with lax affordability checks, self-certification, and interest-only structures a thing of the past.े However, economic downturns or market corrections could still elevate risks for borrowers lacking an equity cushion.
Despite the advantages of no-deposit mortgages for first-time buyers struggling to save a deposit, interested parties should ponder over the financial risks involved, including higher interest payments and negative equity if house prices decline. Buyers should have a well-planned strategy to lower their loan balance by making regular overpayments, and they should not rely solely on future property price growth to build equity.
In summary, while no-deposit mortgages may offer easier access to homeownership, borrowers should be aware of the potential financial risks and plan their long-term financial stability carefully. Long-term stability and wealth accumulation will hinge upon managing the debt effectively, not just securing a quick entry point to homeownership.
- Various finance options have emerged, such as mortgages from April Mortgages and Gable Mortgages, that cover the entire property purchase price, bypassing the need for an upfront deposit.
- These no-deposit mortgages, scarce in the current market, require borrowers to fulfil minimum income criteria and fix their mortgage for a period of 10 to 15 years.
- April Mortgages demands a £24,000 annual income, while both lenders mandate a minimum loan of £125,000.
- In the realm of fashion-and-beauty, personal-finance, technology, travel, sports, or food-and-drink, careful planning and responsible spending will contribute to long-term lifestyle stability.
- Major banks are increasingly competitive, easing affordability rules to facilitate larger loans, with the number of mortgage deals for 5% deposits reaching its highest level since the financial crisis.
- One significant concern is the potential financial risks associated with no-deposit mortgages, such as higher interest payments and negative equity if house prices decline.
- Adept first-time buyers should approach these mortgage products cautiously, employing a strategy to lower their loan balance through regular overpayments, ensuring their long-term financial stability and wealth accumulation.
