UK mortgages
There has been a massive change in the UK housing market whereby 100 per cent mortgage loans where house buyers are not supposed to deposit money has returned to the financial market. Once available, but disappearing AFTER the 2008 financial crisis, these products are being brought back, to assist first-time buyers to overcome the ever-increasing hurdle ofdepot-raising, in the current high-cost housing market.
A First-Time Buyers Lifeline?
The resurrection of 100% mortgages is being heralded as a means of assisting long term renters to get their foot on the property ladder. As rents continue to increase and wages fail to keep up with inflation, a lot of people and families are finding it very difficult to save the large amounts of money needed even to put 5per cent or 10per cent deposit. In this regard, the no-deposit mortgage products can be a part of the solution, as they will bring the homeownership within reach of the individuals with steady incomes and weak savings.
Stricter Regulations Than previously
These new breed of 100 percent loans are coupled with underwriting standards that are tighter than the ones that existed before 2008. They will have to pass stringent credit investigations, show proofs of steady income and in certain instances, show that they have been able to maintain rental payments that are equal to or greater than the future mortgage payment. There are also lenders who are demanding a family guarantor or parental savings which is attached to the mortgage as a security.
On #160;Mistakes of the Past.
The tentative introduction is indicative of a general desire to ensure that the same errors that caused the global financial crisis are not repeated. The events that took place during the housing boom in the early 2000s show that lenders issued high-risk loans without much control, causing a series of defaults and devaluations. The current financial regulators have imposed stricter restrictions on the degree of risk, and lenders are taking advantage of the contemporary data tools in order to improve their assessment of the borrower credibility.
Why This is Important to the current Market
Over the last twenty years the UK housing market has evolved in a number of ways. The exorbitant house prices especially in city cities such as London, Bristol and Manchester have priced out several young professionals. To them, 100% mortgages provide an opportunity to end the renting habits and begin to accumulate equity, without having to wait many years to save a deposit that, in any case, may be unrealistic.
Negative Equity risk
But the reappearance of no-deposit loans does not come without perils. Negative equity is one of the fears; this is when the mortgage debt is worth more than the house. Borrowers who put no initial cushion of equity in their property may find themselves in a very tight financial situation should the property prices dip. This risk is most particularly applicable where prices are already tempering or where there is some uncertainty in the economy.
The increased Interest Rates and Affordability
The 100% mortgage products are usually charged a higher interest rate than the normal mortgages that require a deposit. With the higher rates, the lenders are trying to protect themselves against the increased exposure to risk. Potential borrowers should evaluate their comfort levels in regard to higher monthly repayments and future rate increases and their effect on the budgets.
An Indicator of triggers of Housing Policy More broadly
The returning 100 percent loans are not only a financial phenomenon, but also the symptom of the increased interest in the housing policy reformation. There is a long term lack of affordable homes in the UK and innovative lending models are just one of the ways that it is trying to respond. These measures can be effective, but only in the short term, unless supply of housing is also increased, experts say.
Ten-percent Mortgage: Is It Suitable to You?
Although these products will be attractive, they will not be suitable to everybody. They best suit those people who have secure employment, good credit histories, and a clear comprehension of the long-term obligations of home ownership. There must also be a contingency plan and this is one of the reasons why buyers should consider having a backup plan in case the markets crash or personal conditions change. It is quite advisable to consult an independent mortgage adviser or financial planner.
What Lies Ahead: A Brave New World or Deja vu?
The reappearance of 100 per cent mortgages could herald a new era in home financing in the UK-or it could be a case of back to the future, with all its excesses. When approached tactfully and with restraint they would assist thousands of tenants to own their own home. However, when it is applied carelessly or without sufficient precautions the end result would be a replica of the financial disasters of the past years.
The housing industry is observing keenly the performance of these no-deposit mortgages in the coming years as they are likely to set the trend of mortgage products and accessibility of houses in the UK.
