A new 100% LTV mortgage for UK homebuyers has been dubbed a potential game changer, but how exactly does the country’s first no-deposit deal since 2008 work?

If you are interested in applying for a zero-deposit mortgage or would like to learn more about how the facility works, call UK Property Finance today for an obligation-free chat.

The cost of purchasing a property has always been a significant issue in the UK, especially for first-time buyers. Unable to come close to meeting prohibitively high deposit requirements, almost an entire generation of would-be home buyers has been confined to overpriced private rentals.

But this is something that could be set to change over the coming months and years as a new 100% LTV mortgage is introduced. The first no-deposit product to be offered in 15 years, experts are optimistic that the new deal could be a game-changer.

At UK Property Finance, we are delighted to have added the UK’s first zero-deposit mortgage in over a decade to our product range. If you are interested in applying or would simply like to discuss your eligibility in more detail, our team is standing by to take your call.

What is a 100% LTV mortgage?

For decades, the biggest barrier to homeownership for UK residents has been the deposit required for a mortgage. In some parts of the country, particularly in London and the South East, the average deposit required can be as much as £80,000 – a completely insurmountable cash payment for most.

By removing the need for a deposit entirely, a 100% LTV mortgage could open up the possibility of homeownership to a whole new group of people. Those who would have never otherwise been able to afford to buy their own home (despite being able to comfortably cover average monthly mortgage repayments) may finally be able to get on the property ladder.

Importantly, a 100% LTV mortgage could help many thousands escape the vicious cycle of renting, where the largest proportion of earnings goes towards paying rent every month with no prospect of ever building equity in their own home.

Who can qualify for a no-deposit mortgage?

For the most part, the UK’s first no-deposit mortgage since 2008 works similarly to a conventional home loan. The product is available as a five-year fixed-rate deal, for which a series of general eligibility requirements must be fulfilled.

Examples of these include:

• Applicants must be first-time buyers aged at least 21 years at the time of their application.
• Evidence must be provided of a minimum of 12 consecutive months of rental payments, with no late or missed payments during this period.
• All household bills must also have been kept up to date for a minimum of 12 consecutive months, such as council tax and utilities.
• No defaults regarding any other repayments should be present on the applicant’s credit report from the past six months, such as mobile phone payments or TV subscriptions.

It is worth noting that each of the requirements above applies to all applicants named on the application, not just the main applicant.

For more information on eligibility requirements or to submit your application for a 100% LTV mortgage, contact the team at UK Property Finance today.

How much is available with a no-deposit mortgage?

All the usual eligibility criteria apply where maximum loan sizes are concerned, based on the general financial status and income level of the applicant.

However, there is an additional restriction with the new 0% deposit mortgage: applicants are only able to borrow up to the equivalent of their monthly rent. For example, if your current monthly rent repayment is £800, you will only be able to take out a mortgage with a maximum monthly repayment of £800.

Here is a brief overview of how much is available with a 100% LTV mortgage, based on the applicant’s current monthly rent:

Monthly rent	Maximum mortgage
£500	£81,000
£750	£123,000
£1,000	£163,000
£1,250	£204,000
£1,500	£244,000
£2,000	£325,000

These figures represent the maximum mortgage loans available; actual offers will vary significantly based on lenders’ usual financial stress tests.

Cautious optimism

While there has been some scepticism from economists regarding the potential risks associated with high-LTV mortgages, the vast majority have welcomed the new product with cautious optimism.

Martin Lewis, founder of MoneySavingExpert.com, said that while he has mixed feelings about 100% mortgages, there is no disputing the fact that they address a problematic and long-standing gap in the market.

“Having campaigned for years to try and help mortgage prisoners locked in at hideous, unaffordable rates, the spectre of 100% mortgages returning leaves me with mixed feelings,” he said.

“Years of property-porn TV shows have spouted the idea that you must buy a house as soon as possible, as big as possible – actually, the real priority is not to overstretch your finances. Before the 2007 financial crash, banks would simply throw mortgage loans out to anyone walking past a branch window; now we need to be more careful.”

“The criteria of requiring a good rental track record to prove someone can make mortgage payments is sensible, and so I cautiously welcome it, done carefully, after advice, as an option for some.”

The UK’s only 100% LTV mortgage is currently available at a five-year fixed rate of 5.49%, with no arrangement fees or processing fees.

For more information on any of the above or to get your no-deposit mortgage application underway, contact a member of the team at UK Property Finance today.

Despite the lingering economic uncertainty that has maintained a tight grip on the UK throughout 2022, second-charge lending has once again seen a bumper year. A minor slowdown in lending volumes was recorded over the past two months, but the overall picture for the year was one of record combined loan values.

According to the latest Secured Loan Index published by Loans Warehouse, total year-on-year second charge lending for 2022 was up by almost 37% in November, coming out at a total of £1.6 billion in loans issued. This marked the sector’s best performance since 2007, even with the figures having been released with two months still to go until the end of the year.

The figures from Loans Warehouse indicated a significant decline in the number of high LTV loans being issued in November, with 85% or higher LTV products accounting for just 13.7% of loans issued. In addition, average loan terms have increased by approximately one year, suggesting that more borrowers are looking to spread the costs of their purchases and projects over a longer period of time to compensate for the escalating living costs crisis.

“The average term of a secured loan has increased by 12 months, potentially linked to lenders’ affordability being stretched more than ever before in recent times,” commented Matt Tristram, managing director of Loans Warehouse.

“Finally, many lenders have significantly improved their completion time, likely a result of a dip in the record-breaking lending levels seen across the summer months.”

What is second-charge borrowing, and how is it used?

Second-charge borrowing refers to a type of loan that is secured against a property that has already been used as collateral for another loan. The term “second charge” refers to the fact that the loan is considered a secondary priority if the borrower defaults on their payments and the lender needs to sell the property to recover their money.

This subsequently means that the original first charge loan on the property (such as a mortgage) would be repaid first in the event of repossession, followed by the second charge loan.

There are countless different uses for second-charge borrowing, which can technically be used for almost any legal purpose. Some of the most popular applications for second-charge products in the UK are as follows:

• Home improvements: One of the most common reasons for taking out a second-charge loan is to fund home improvements. This can include things like renovating a kitchen or bathroom, adding an extension, or updating heating and electrical systems.
• Debt consolidation: Second-charge borrowing can also be used to consolidate multiple debts into one single loan with a lower interest rate. This can be particularly useful for individuals who have multiple credit card debts or other high-interest loans.
• Business use: Some borrowers use second-charge loans to fund business ventures or expansion projects. This can include things like buying new equipment or hiring additional staff.
• Funding education: Second-charge loans can also be used to pay for education-related expenses, such as tuition fees or the cost of relocating to a university.
• Unexpected outgoings: In some cases, individuals may take out a second charge loan to cover unexpected expenses, such as medical bills or car repairs.

It is important to note that while it can be an affordable facility, second-charge borrowing is not suitable for everyone. Lenders typically require borrowers to have a good credit score and sufficient equity in their property to qualify for second-charge loans. Additionally, second-charge loans are generally more expensive than first-charge loans, as the lender is taking on more risk by providing the loan.

However, some secured loan specialists are willing to issue second-charge loans to applicants who do not fulfil the ‘mainstream’ criteria set out by banks in general. For example, you may still be able to qualify for a competitive second-charge loan with poor credit, but you will need to target a specialist lender with your application.

Smaller housebuilders in the UK appear to be hindered from building new houses by problems related to mortgage accessibility, according to research performed by the Federation of Master Builders (FMB). After conducting a poll on 122 SMEs within the house building sector, the FMB found that 38% were finding mortgage accessibility issues a barrier to their planned projects.

Worse still, almost 50% said they expect the problem to worsen over the coming years.

62% of those polled said that lack of ‘available and viable’ land is the single biggest obstacle in the way of residential housing projects. 60% said the current planning system remains a major issue, while close to 50% said that the delivery of new projects is being hampered by a lack of skilled workers.

The government is being lobbied to alter its immigration policy to allow skilled workers into the UK to support the housebuilding sector, having once again failed to come anywhere near meeting its own long-promised annual housebuilding targets.

“This year’s FMB House Builders’ Survey highlights the persistent barriers holding back small, local house builders,” said Brian Berry, chief executive at the FMB.

“Delays in the planning system and a lack of available and viable land are stopping the industry from building the homes that are needed.”

“The lack of mortgage availability reveals the damage that the current economic turbulence has created.”

“A lack of skilled labour is another major barrier holding back the potential of SME house builders. This will come as a little surprise to many.”

“The government must look to develop homegrown talent, but targeted immigration has to be an option on the table to support the industry.”

“The government can achieve its ambitions for growth and levelling up by supporting the nation’s SME house builders.”

“Who better to invest in than local house builders, who act as the engines of growth in their communities, employing local workers, training local school teachers, and delivering quality homes?”

Rishi Sunak faces rebellion over housing policy

Meanwhile, Rishi Sunak is staring down the barrel of a major Tory MP rebellion, with more than 50 MPs calling for an amendment that would end housebuilding targets for local councils.

Led by the former cabinet minister Theresa Villiers, the amendment so far has the backing of 46 MPs, who want to see housebuilding targets made advisory rather than mandatory. The proposal has been met with disappointment and disdain from the opposition, with campaigners stating that it will cause further harm to the UK’s already struggling housing sector.

Damian Green, Esther McVey, Priti Patel, Chris Grayling, and Iain Duncan Smith are among the prominent names that have given their backing to the proposed amendment.

But rather than supporting the housing sector, critics are adamant that the amendment would further reduce the availability of affordable housing inventory across the UK.

“The actual effect would be to enshrine nimbyism as the governing principle of British society, to snap the levers that force councils to build, and to leave every proposed development at the mercy of the propertied and privileged,” commented Robert Colville, director of the CPS thinktank.

Meanwhile, former levelling-up secretary Simon Clarke expressed his own surprise and disdain for the amendment.

“There is no question that this amendment would be very wrong. I understand totally how inappropriate development has poisoned the debate on new homes in constituencies like Chipping Barnet [Villiers’ constituency], but I do not believe the abandonment of all housing targets is the right response,” he said.

“We also need to recognise the fundamental inter-generational unfairness we will be worsening and perpetuating if we wreck what are already too low levels of housebuilding in this country. Economically and socially, it would be disastrous. Politically, it would be insane.”

The shadow housing secretary, who characterised the entire situation as a move in the wrong direction, expressed similar sentiments.

“This is a complete shambles. The government cannot govern, the levelling-up agenda is collapsing, and the housing market is broken. Pulling flagship legislation because you’re running scared of your own backbenchers is no way to govern,” she said.

“There is a case for reviewing how housing targets are calculated and how they can be challenged when disputed, but it is completely irresponsible to propose scrapping them without a viable alternative in the middle of a housing crisis.”

“Labour will step up to keep this legislation moving. There is too much at stake for communities that have already been victims of Tory chaos and of a prime minister too weak to stand up to his own party.”

Increasingly, mortgage brokers are experiencing difficulties keeping up with the continuous changes in lending criteria introduced by the lenders they represent.

A poll conducted by Smart Money People suggests that the majority of brokers are struggling to keep track of lender eligibility requirements and general qualification criteria due to the speed and regularity with which they are being amended.

Of the 751 brokers polled, almost half (43%) said that they relied primarily or exclusively on emails (and similar communications) from lenders for information on lending policy updates. Brokers said that while technology is simplifying the process of keeping on top of lender policy shifts, no current systems are enabling them to respond to lenders’ policy changes in real-time.

As a result, brokers face the prospect of more complex and time-consuming application processes or the risk of providing their own clients with inaccurate information.

“The findings we’ve published today indicate the extent to which mortgage brokers have found it difficult to stay on top of all the movement in lenders’ product offerings, brought about by the recent economic turmoil,” commented Jacqueline Dewey, CEO at Smart Money People.

“Brokers are certainly frustrated that some lenders are changing rates on a Friday evening or Sunday, making them feel they need to work out of hours.”

“With so little notice, it’s adding a lot of extra pressure to already stressed brokers.”

Major shifts in lending policies

The significance of the issue is highlighted by the number of high-street lenders that have made sweeping adjustments to their lending policies over the past few weeks.

As lenders become increasingly reluctant to hand out high LTV mortgages in the current financial landscape, data from Moneyfacts suggests that around 65% of all mortgage deals with a 5% deposit requirement have been taken off the market entirely.

This is likely to cause a major concern among prospective homebuyers on low incomes, who may be entirely unable to come up with the typical deposits needed to qualify for a mainstream mortgage.

“First-time buyers are some of the lowest income-earners in the UK, and when house prices are up to 10 times the national average of wages in some areas, it has proven extremely difficult to obtain a mortgage,” said James Miles, of The Mortgage Quarter.

“The good news is that lenders are still lending and there are enough loans, but we are seeing mortgages being taken over a longer term to ensure payments are affordable for first-time buyers.”

“I would expect this to continue until the UK can get inflation under control, which will then have a knock-on effect of rates coming back down.”

Analysts remain confident that average interest rates will not be quite as high as predicted during the first half of next year, which may come as some comfort to those already paying around 6% on their home loans.

But with further house price growth on the cards for the foreseeable future, there is no immediate light at the end of the tunnel for those who have found themselves priced entirely out of the market.

 

In what could prove welcome news for at least some prospective borrowers, average interest rates on five-year fixed mortgage deals have fallen below 6%. This is the first time average rates have dipped below 6% since Kwasi Kwarteng’s catastrophic mini budget two months ago, which, along with crippling the UK economy, also cost him his job.

Importantly, experts believe that further reductions are on the horizon and that prospective borrowers could potentially benefit by holding out a little longer.

Newly published data from Moneyfacts shows that five-year fixed-rate mortgage deals are now being offered with an average APR of less than 6% for the first time in seven weeks. Jeremy Hunt’s attempts to calm financial markets and restore some confidence in the UK economy seem to be having an impact, but there is still some way to go before Mr Kwarteng’s damage is fully reversed.

As for whether now is the time to take advantage of this small but welcome reduction in average mortgage rates, the general advice among experts is to hold out a little longer.

“Borrowers may well breathe a sigh of relief to see that fixed mortgage rates are starting to fall, but there may be much more room for improvement,” said Rachel, a finance expert at Money Facts.

“Borrowers who paused their homeownership plans, or indeed parked the idea of refinancing, may now be tempted to scrutinise the latest deals on offer.”

All indications point to further (albeit minor) interest rate falls on the horizon, which, over the course of a typical mortgage, could amount to significant savings for borrowers.

“It is worth noting that rates could fall further still, but there is no clear answer as to how quickly that may be,” Rachel added.

“Indeed, it’s been about two months since both the average two- and five-year fixed mortgage rate breached 5%, but today only a handful of lenders are offering sub-5% fixed deals.”

“Borrowers may feel they have to be patient for a little while longer before they commit to a new fixed mortgage, or even wait until next year to see how the market recovers from the recent interest rate uncertainty.”

A steady drop in house price growth

The news from Moneyfacts comes shortly after the single sharpest drop in average property prices recorded since early last year: down 0.4% in October compared to the month before.

“There’s no doubt the housing market received a significant shock as a result of the mini-Budget, which saw a sudden acceleration in mortgage rate increases,” commented Kim Kinnaird on behalf of Halifax.

Data suggests that annual house price growth for October came out at 8.3%, which is a significant decline from the prior 9.8%. On average, house prices fell by £1,066 between September and October, coming out at £292,598.

Unsurprisingly, the first-time buyer market has been hit hardest of all, as prospective buyers find it increasingly difficult to qualify for high-street mortgages. Many banks have withdrawn their high LTV products entirely; a typical first-time buyer now faces a minimum deposit requirement of around £45,000.

Affordability in the housing market has been all but wiped out by skyrocketing mortgage rates. According to Moneyfacts, the average two-year fixed-rate deal has leapt from 3.25% in June to around 4.24% in September.

Following Kwasi Kwarteng’s disastrous mini-budget, average two-year fixed-rate mortgages temporarily peaked at 6.65% in mid-October. Nerves were calmed slightly following his swift and unceremonious exit, but mortgage rates are still high and set to climb further. Some mortgage payers are likely to find the coming months particularly difficult as their introductory deals come to an end.

Skyrocketing interest rates are making once-affordable fixed-rate mortgages increasingly less attractive. FCA figures suggest that around 75% of all UK mortgage payers take out fixed-rate deals, but this is likely to change as base rates head ever higher.

“For a long period of time, the dilemma in mortgage advice hasn’t been whether to fix a rate but for how long to fix it,” said mortgage and protection adviser at Prosperity Wealth Ltd., Tom Woodall.

“Now, we face a period where fixed rates have dramatically increased due to a variety of factors, and, as such, other types of mortgages need to be considered for clients looking either to purchase a property or remortgage.”

In which case, what are the alternatives available to fixed-rate mortgages?

Tracker and discounted mortgages

With a tracker mortgage, the rate of interest payable tracks the Bank of England base rate, only slightly higher. Meanwhile, a discounted mortgage works similarly, but the rate charged is a percentage point lower than the lender’s standard SVR.

Both of these options carry risks but can be highly advantageous due to the advantages they bring.

“Although most lenders have repriced their variable rate mortgages, clients are acknowledging that SVRs and the base rate would have to increase fairly starkly to meet the current fixed rates on the market,” commented Woodall.

“With tracker rate mortgages, generally there are no early repayment charges,” added Woodall.

“This has led to the emergence of the ‘switch to fix’ mentality across the market… utilising a tracker product with lower monthly costs and no early repayment charges while the Bank of England rate is closely monitored. As a contingency, the plan is to switch to a fixed rate if the Bank of England rate spirals and pushes monthly payments beyond budget.”

Capped mortgages

This is a similar product to a standard variable rate mortgage, though it includes a ‘cap’ beyond which the interest rate cannot go. Capped mortgages were popular 20 or so years ago but largely disappeared from the High Street as fixed-rate mortgages became increasingly affordable.

The obvious benefit of a capped mortgage is the peace of mind that comes with knowing your interest rate will never exceed a predetermined cap. Tracking down a good-capped mortgage on the High Street today can be difficult, but we may see more such products (or close approximations thereof) appearing as demand grows.

Offset mortgages

With an offset mortgage, you use your savings to offset some balance left on your mortgage, reducing the amount of interest you pay. You transfer your savings into an account linked to your mortgage, and the total value of your mortgage is technically reduced by this amount.

With an offset mortgage, you can still access your savings in the normal way, but you do not earn any interest on them. This, therefore, needs to be considered alongside potential interest savings, but a decent chunk of money used to offset a mortgage can lead to a major reduction in interest payments.

That said, even just a few thousand pounds to offset a mortgage can make a huge difference.

Green mortgages

Green mortgages are often exclusive to those who purchase energy-efficient homes or plan to make their own homes more environmentally friendly. A lower interest rate or cash-back offer is provided as an incentive, typically making a green mortgage more affordable than a conventional mortgage.

But as the costs of green homes (and conducting energy-efficient home improvements) may exceed the financial capabilities of many buyers, green mortgages are not always a viable option for mainstream borrowers.

Falsehoods regarding equity release are rife, with many people believing untruths that are preventing them from taking advantage of the benefits of this type of finance.

In a world where people are retiring earlier and living longer, many homeowners are looking to release built-up equity in their homes. Homeowners are increasingly wanting to stay in the houses they have spent many years upgrading and making their own, resulting in an increase in the popularity of equity release finance products.

Despite the obvious advantages of equity release, there are still various myths that are preventing many people from considering this option.

I could be forced to move

This is not true! You will never be required to move from your home. Lifetime mortgages allow you to remain in the home, and you will remain the official owner with the property staying in your name.

If the property is in joint names, you will have the right to remain resident in the home until the last remaining survivor either goes into permanent care or is deceased. This is regulated by the Equity Release Council.

Interest rates roll up over time, and it’s very costly

This is not necessarily the situation. Lenders will give options regarding the repayment of interest rates. Typically, the interest will be added to the loan total and paid off in full when the home is ultimately sold to repay the loan. You can also decide if you take the equity released as a lump sum or if you prefer it to be paid out in regular payments, a bit like an income.

Many equity release providers will offer the option of paying part or all of the interest during the lifetime of the loan. This means that the interest will not ‘roll up’.

I may end up in negative equity

These days, regulations regarding the financial market are a lot more stringent than they were in the past. The FCA (Financial Conduct Authority) has introduced many regulations to protect consumers. The majority of lenders offering equity releases are also members of the Equity Release Council.

Members of the Equity Release Council are required to provide their clients with a no-negative equity guarantee, which protects the borrower from this worry. This is why it is imperative that you check that the lender you use is a member for your reassurance.

What this means for the borrower is that no matter what happens in the property market, you will never be required to pay more than the value of your home, even if it is less than the amount owing on the loan.

Will I have to take the money in one lump sum?

No, you will not have to take the funds in one go, unless, of course, you choose to do so. This type of loan is flexible, and typically, a lifetime mortgage will release the equity in one lump sum. You will need to continue to make payments on your mortgage as usual.

However, not everyone wants their funds in a lump sum and may choose a ‘drawdown’ option, which releases money in stages. By taking the funds in frequent, smaller amounts, the interest amount added to the loan each month will decrease.

My children will get no inheritance

Many parents in their twilight years will release equity in order to gift to their children as a type of ‘living’ inheritance so that they get the pleasure of seeing their loved ones use the money to improve their lives. There may be an inheritance tax that will be due at some point in the future, but arguably it is far more beneficial for them to get the money when they probably need it the most as opposed to waiting until they themselves are older and probably more established.

Equity release will not be the best choice for everyone, and it is vitally important that you educate yourself on all the pros and cons. For this reason, it is advisable that you consult with a broker who has experience in this sector before committing to any equity release product.

Homeowners have been thrown at least a modicum of moderately positive news this week, as forecasts now predict that interest rates will peak slightly lower than previously expected. Data from Bloomberg suggests that the Bank of England base rate will hover at around 4.8% to 4.9% between March and September next year, which is significantly lower than the pick predicted at the time of Kwasi Kwarteng’s disastrous mini budget a few weeks ago.

This may come as welcome news to some homeowners, but many mortgage payers are still likely to feel the sting of significantly elevated rates. According to a separate study carried out by Morgan Stanley, around 35% of 40% of introductory mortgage deals are set to expire within the next 12 months. This will leave those exiting low introductory rates facing the prospect of interest rates up to three times higher than they are currently paying.

Adding to the economic woes of households hit by higher mortgage rates will be the withdrawal of the energy price guarantee next April. The average household energy bill is currently capped at £2,500 per year, but the initial plan to extend this scheme for two years was recently scrapped, reducing its run to just one year.

Without additional support, this will leave millions of households facing the prospect of even higher energy bills than those that have blighted much of the country throughout 2022.

A 300% leap for many mortgage payers

According to Morgan Stanley, the vast majority of households on fixed-rate introductory deals that are set to expire within the next six months will find themselves moving from a low 2% interest rate to around 6%. This will leave millions facing exponentially higher monthly mortgage bills, of which many may not be able to meet their payment requirements at all.

Speaking on behalf of Brewin Dolphin, a wealth management company, Rob Bargeman said that the appointment of Jeremy Hunt as Chancellor had at least calmed some fears among traders and market watchers.

“Essentially, spending more money and cutting taxes left international investors, who the government relies upon to fund our budget deficit, worried about the sustainability of the UK’s finances,” he said.

“As a consequence, investors demand a higher price and a greater interest rate to compensate them for the higher risk.”

65% of high-LTV mortgage products were withdrawn

Analysts now believe that interest rate rises throughout the first three quarters of 2023 will not be quite as steep as once predicted. As it stands, the current rate payable on a two-year fixed mortgage (following any introductory rate offers) is around 6.55%.

As lenders become increasingly reluctant to hand out high LTV mortgages in the current financial landscape, data from Moneyfacts suggests that around 65% of all mortgage deals with a 5% deposit requirement have been withdrawn.

This is likely to make it much more difficult for prospective homebuyers with low incomes to come up with the kinds of deposits needed to qualify for the mortgage products still available from mainstream lenders.

“First-time buyers are some of the lowest income-earners in the UK, and when house prices are up to 10 times the national average of wages in some areas, it has proven extremely difficult to obtain a mortgage,” said James Miles, of The Mortgage Quarter.

“The good news is that lenders are still lending and there are enough loans, but we are seeing mortgages being taken over a longer term to ensure payments are affordable for first-time buyers.”

“I would expect this to continue until the UK can get inflation under control, which will then have a knock-on effect of rates coming back down.”