The Intermediary – June 2025 - Flipbook - Page 22
RESIDENTIAL
Opinion
The return of the
100% mortgage?
Probably not…
T
here has been a lot of
noise around 100%
mortgages in recent
weeks due to the
emergence of two
new entrants in this
market. Is this the start of the return
of higher loan-to-value (LTV) lending,
or is it the case that it’s never really
been away? “The reports of my death
are greatly exaggerated,” to quote
Mark Twain.
Let’s peek behind the curtain to see
what’s going on, and whether 100%
lending is really back, or whether it’s
still a product in search of a market.
A large part of the interest in 100%
mortgages seems, at least in part,
to stem from the association with
100% loans and the financial crisis
of 2007-8.
Having been at the heart of the
Global Financial Crisis – at Lehman
Bros at the time, in fact – most the
issues stemming from the mortgage
market weren’t from 100% mortgages
per se, but broadly from lax lending
decisions and a lack of adequate capital
underpinning the loans.
While the now infamous Northern
Rock Together mortgage – “Infamy,
infamy, they’ve all got it in for me,”
Kenneth Williams – let people borrow
up to 125%, ‘only’ 95% of it was in
the form of a mortgage, with the
remainder coming in the form of a
personal loan.
Since this point in time, as lenders
and brokers are no doubt fully aware,
the Prudential Regulation Authority
(PRA) and the Financial Conduct
Authority (FCA) have put in place a
large number of measures to (aempt)
to prevent the events of the Global
Financial Crisis reoccurring.
Chief among these is the adoption
by banks and lenders of countercyclical capital buffers, or put simply,
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The Intermediary | June 2025
the need to hold an awful lot more
capital against loans in the ‘good
times’, against possible events in the
‘bad times’! In practical terms, this
means that lenders are now having
hold significantly higher levels of
capital against higher LTV loans. In
short, this makes lending at higher
LTV not only more challenging, but
significantly more expensive.
From a very practical point of view,
the default probability of a 100%
mortgage customer rises significantly
over and above a customer who is
puing down a deposit of even 10%,
quite simply as they have ‘no skin
in the game’. On top of this, the loss
severity, should the worst occur, is
obviously and quite simply likely to be
a sum significantly greater than zero,
especially when you build in arrears
and likely losses on the property.
100% challenging
The above, in practical terms, will
mean two things when lenders look
to develop products. First, lending
criteria that is restricted to only those
clients with the best credit profiles and
higher incomes to limit risk of credit
or payment default. Second, rates that
reflect the additional capital that has
to be deployed against the loan.
On the first point, the challenge
or contradiction here is that high
credit or high income customers are
usually not the sort of customers who
typically need 100% mortgages.
The other challenge with 100%
mortgages is around the borrowing
requirement. Many, or indeed
arguably most first-time buyers
(FTBs) in the South, are looking for
a stretch on income multiples above
4.5-times. As well as the deposit itself
stretching the customer’s purchasing
power, lenders will look favourably on
most FTBs with a deposit – the larger
PETER STIMSON
is managing director of
mortgages at MPowered
Mortgages
The challenge or
contradiction here is that
high credit or high income
customers are usually
not the sort of customers
who typically need a
100% mortgage”
the beer! – given the decrease in risk,
loss severity and capital requirements
detailed above. This is generally not
the case on 100% loans.
In summary, a 100% mortgage is
more expensive, will mean generally
lower borrowing outcomes and a
smaller property budget, and will be
restricted to a smaller customer cohort
by virtue of credit and income.
Does that mean that they don’t
have a place? No, of course not. Not
everyone has access to ‘bank of mum
and dad’ or the means to save for a
deposit, and for some they will be
absolutely the right choice. I just don’t
see that, considering where lenders
and the market are now, it’s ever going
to be more than a niche product.
These products are too challenging
and expensive to fund, and there
are other, beer options out there
for many customers, such as Joint
Borrower Sole Proprietor mortgages
or family springboard mortgages and
lend a hand options. ●
