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100% Mortgage is back- with a catch

Posted by Mike Carey on 11th May 2016
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If you’re a first time buyer, but don’t have a deposit, you could now be able to take out a 100 per cent mortgage with one of the leading High Street banks. Sound too good to be true? Well, there is a catch. Your parents will need to pay a 10 per cent deposit into a related savings account (the Helpful Start Account) and leave it there for three years to act as security for the home loan. The offer, from Barclays, is the first time a major lender has offered a 100 per cent mortgage since before the financial crisis. Accepted buyers will be able to take out a three-year fixed rate deal at 2.99 per cent without having to stump up any of their own cash. Until now, buyers have had to put down a deposit of at least five per cent of the purchase price, in addition to anything lent or given by family members. young couple with keys.jpg The decision to scrap the deposit requirement is part of a series of enhancements to the Barclays Springboard Mortgage, which was originally launched three years ago to enable parents to help their children buy a home without having to gift a deposit. Up until now, the parent had to contribute savings equal to 10 per cent of the purchase price into a related account for the three years for which the mortgage was fixed and the borrower had to contribute a further 5 per cent deposit. So the bank had security of 15 per cent of the purchase price while giving the buyer a 95 per cent LTV. The rate the Springboard Mortgage originally came with was 4.69 per cent, meaning someone buying a home at £160,000 would need to save £8,000 for a five per cent deposit and their family would need to put £16,000 into the savings account. Based on a 25-year repayment mortgage, the loan would cost £861.34 per month for the first three years. With the new improvements to the mortgage, including the 2.99 per cent mortgage interest rate fixed for three years, the family contribution would remain at £16,000 but the buyer would only have to pay the monthly repayments of £682.12 a month. barclays-logo_979096b.jpg However, in launching the product ‘enhancements’, Barclays has increased the mortgage rate from 2.89 per cent to 2.99 per cent, and frozen the interest it pays to mum and dad at base rate plus 1.5 per cent. Based on today’s base rate that has prevailed for the past seven years equates to 2 per cent, or £320 on the £16,000 they would need to put away in the savings account. The bank has raised the income multiple a borrower earning at least £50,000 can secure to 5.5, up from the 4.4 it offers to all other borrowers. With an income multiple of 5, an individual earning £50,000 could borrow up to £275,000, compared to £220,000 previously. And if a borrower misses a payment, the bank can hold on to their parent’s money for longer than initially planned. If borrowers can no longer make their mortgage repayments, Barclays will keep the money in the Helpful Start Account. It also warns that if it becomes necessary to repossess the property, ‘the helper could lose money if there’s a shortfall between the money we’re owed and the amount we sell the property for’.