The Intermediary – July 2025 - Flipbook - Page 31
RESIDENTIAL
Opinion
100% mortgages
have a place in
today’s market
F
ew financial services
products provoke more
criticism and debate
than the 100% loan-tovalue (LTV) mortgage.
But with two lenders
reintroducing no-deposit mortgages
to the UK market in recent weeks, it’s
worth stepping back and reassessing
such product innovation in the context
of today’s consumer demands.
While some products may have
become a symbol of pre-crisis excess,
100% LTV mortgages didn’t cause the
2007-08 crash. And for me, they can
play a valuable role in today’s modern,
well-regulated market.
Negative equity
An obvious criticism of 100% LTVs
is the risk of negative equity. It’s a
valid concern – if house prices fall,
borrowers with no equity are more
exposed, of course.
But clearly this risk isn’t unique
to 100% LTV loans – anyone buying
with a small deposit faces similar
challenges. All mortgages involve risk
for both borrower and lender.
What critics oen ignore is that the
upside of 100% LTV lending can be
significant, especially for first-time
buyers locked out of the market by
unaffordable deposit requirements.
Geing onto the property ladder
sooner means benefiting from house
price inflation, building equity and
avoiding the wealth drain of longterm renting.
Many borrowers are lucky enough
to have help, but according to Savills
48% of first-time buyers received no
parental assistance last year. These
borrowers may well have strong,
stable incomes, but what they lack
is £30,000 to £50,000 for a decent
deposit. For this group, a 100% LTV
product could be the difference
ROB CLIFFORD
is chief executive
at Stonebridge
between renting indefinitely or
owning their own home.
Changing times
To appreciate the potential role
of these mortgage deals in today’s
market, it’s important first to
understand how the lending landscape
has evolved since their heyday.
The reason 100% LTV mortgages
have a tarnished reputation is not
because they allow borrowers to buy
a home with no personal stake. It’s
because, prior to the financial crisis,
many borrowers were granted one
without having to pass an affordability
test. Today’s due diligence couldn’t be
more different from the pre-crisis era.
Even with the Financial Conduct
Authority (FCA) looking to reduce
restrictions and fuel growth, lenders
are still subject to one of the most
robust regulatory frameworks of
any sector.
It’s not just regulation that has
developed – technology now delivers
extensive insight into borrower
income and spending, enabling
far more granular affordability
assessments than were ever possible in
the 2000s.
Lenders today know far more about
their customers and can lend with
greater confidence as a result. That’s
why arrears remain at historically
low levels despite the rate shocks
experienced by borrowers.
Calculated risk
In the grand scheme of things, the
100% LTV loan is a niche product.
Even in the mid-2000s, they never
accounted for more than a sliver of
total mortgage lending.
FCA data shows that, in Q1 2007,
loans above 95% LTV account for
less than 5% of all lending. Today, I
would be surprised if 100% mortgages
accounted for more than a 1% market
share. This is not an opening of the
floodgates.
One of the more enduring criticisms
of 100% LTV mortgages is that
borrowers have nothing to lose if
they don’t maintain payments. I’ve
always found this argument spurious.
While these borrowers may not
start with equity, they build it with
every repayment. Their financial
commitment is real from day one –
every month they’re paying down
capital, reducing risk for the lender
and building wealth.
To me, the reappearance of 100%
LTV products signals something
positive: a growing appetite among
lenders for calculated risk – risk
that is thoroughly assessed, wellunderstood and priced appropriately
based on robust data and underwriting
standards. That is essential for a wellfunctioning market – something, one
could argue, that has been to a great
extent missing from the market since
the financial crisis.
Lenders are exploring ways to satisfy
underserved customer segments
without compromising credit quality.
Competition encourages responsible
innovation. It also gives brokers
more tools to match borrowers with
appropriate products.
The stigma lingers because of the
borrowing landscape of the past.
But markets evolve. In a world of
rising rents, buoyant house prices
and tightening affordability, a 100%
LTV product can once again be a
useful – if niche – solution for the
right borrower.
Let’s judge innovations not by their
past, but by today’s market. ●
July 2025 | The Intermediary
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