The 100% mortgage is back. Last week, Barclays launched its “Family Springboard Mortgage”, making it the first high-street bank since the 2008-2009 financial crisis to allow homebuyers to borrow the full value of their property. But the deal comes with a bit of a twist and certainly isn’t a full return to the lax lending standards that we saw before the crisis.
Barclays will offer this mortgage to first-time buyers only and on the condition that a family member or guardian puts 10% of the purchase price into an account with Barclays for three years. This money earns interest at the Bank of England base rate plus 1.5%. The buyer can then get a mortgage at an interest rate of 2.99%, fixed for three years, borrowing a maximum of £500,000.
Stricter regulations mean 100% mortgages are rare today: there are just eight products available, compared with 238 in August 2007, according to Moneyfacts. Those on offer from smaller lenders, such as Aldermore and Bath Building Society, tend to have higher interest rates (up 5.5%) and are secured against the parents’ property. So Barclays’ version may appeal to a wider range of buyers. In the event that a borrower is unable to keep up with their repayments, Barclays can hold on to the parents’ money for more than the initial three years, and stop paying interest on it.
If the house is repossessed and there’s a shortfall between the money owed and the money generated through the sale of the property, the bank draws on the deposit to make up the difference. So while the mortgage is marketed as a way of allowing first-time buyers to get on the housing ladder without financial contributions from family members, they still need helpful parents, who could stand to lose money if the worst happens.
For borrowers who can afford a deposit, or whose family are willing to hand over the money for one outright, other deals are available. For example, those with a 10% deposit may be able to get the new 2.67% three-year fixed-rate mortgage from the Post Office. However, this comes with an arrangement fee of £1,495. So the Barclays’ mortgage, which is fee-free, could be cheaper, depending on how large a mortgage you need and what happens to rates after the fixed-rate period expires.