A new no deposit mortgage has hit the market and is being targeted at keyworkers and first-time buyers.
Gable Mortgages’ 100% deals comprise two five-year fixed rate zero deposit products – one a standard option, the other for new build homes.
It comes just days after April Mortgages announced it had launched a no deposit mortgage for first-time buyers and movers.
April’s new mortgage, which caused as stir when it was launched last week, comes as a 10-year or 15-year fixed rate deal.
Now hot on its heels, Gable Mortgages has launched its 100% deal to help those people who had historically been priced out of the property market.
The mortgage comes with a rate of 5.95%, which brokers have described as high. It cannot be ported so if borrowers move house they will pay early repayment charges.
It’s arrival on the market has been cautiously welcomed and led to speculation over whether more lenders will launch 100% mortgages and, if so, who might be next.
No deposit mortgages have pros and cons. Whilst they overcome some of the affordability hurdles for first-time buyers – namely the struggle to build a deposit – they are also risky. Without a deposit, there is more chance of falling into negative equity.
The big lesson learned from the financial crisis in 2008 was deposit-free mortgages had the potential to be damaging to some borrowers. As such, strict rules were put in place to prevent irresponsible lending in the future.
This meant 100% deals became rare, but lenders have made tentative – and responsible – steps to reach out to this market with guarantor-based deals and innovative offerings such as Skipton Building Society’s track record mortgage.
Gable’s offering, like April’s, take these a step further.
Emma Jones, managing director at Whenthebanksaysno.co.uk, speaking via Newspage Agency, had concerns. She said: “This is good news for borrowers but again, the question needs to be asked: are we at risk of reliving the last financial crisis?
“I know the government are pushing riskier lending but what about mandatory protection policies to go alongside these mortgages to ensure homeowners have protection in place to cover against the unplanned?”
Other brokers were more positive but explained anyone interested in applying for these mortgages would need to seek advice.
Kylie-Ann Martin, director at KAG Financial, also speaking via Newpsage, said: “I truly believe there is a place for 100% mortgages, if they are regulated in the right way.
“They will never be suitable for everyone, but these lenders aren’t wanting a huge chunk of the market, they are wanting those clients who genuinely suit these niche products we are seeing.
“The ones trapped in their rental properties with high outgoings and little room to save towards that deposit.
“We speak to many people paying huge amounts of rent that would see a considerable reduction in costs when comparing this to a mortgage – so for some I think it is fantastic that more lenders are offering these clients an opportunity to become homeowners.”
Will more lenders release 100% mortgages?
Gable Mortgages and April Mortgages have put their heads above the parapet, but this begs the question – will other more well-known mortgage lenders follow suit?
Nicholas Mendes, mortgage technical manager at John Charcol, said: “With both Gable and April now entering this space, there is every chance that other lenders will follow.
“Increased competition could lead to better pricing, more innovation and a wider range of options for first-time buyers.
“The demand is clearly there, and as lenders compete more aggressively at the entry level of the market, it is likely we will see more low or no deposit offerings appear in the months ahead.
“While these products will not fix the wider housing crisis, they are a crucial step in opening up access to homeownership for renters who have been locked out for too long.”
