Thursday 1 June 2023

The return of 100% mortgages - a sign for trouble ahead?

The past

Do humans ever learn from experience? If you remember back in 2008 we had a catastrophic collapse of the property market and guess who suffered - yes, exactly - those that were highly geared and were stuck in negative equity situations. They became mortgage prisoners, unable to move. This simply because prices dropped suddenly and if they were unlucky enough to become unemployed overnight they'd be unable to move somewhere cheaper and sell their property if it all became too much.

A frequent occurrence

It would seem that this isn't putting off Joe Public from wanting to get on the housing ladder. After all, there's no end of free money to make that happen, what with help to buy loans and free stamp duty and all the rest of it. This, in combination with landlords being persecuted by the taxman and regulations up to here (points to forehead level) a mass selloff in combination with some free money is the perfect recipe to get more renters on to the property ladder. That's what they want, right?

But then what?

I see this all the time. First time buyers stretch budgets, borrow from mum, dad, HTB, various other means and then move in to a pukka pad in an amazing location. Then life happens. They want to live with their significant other, or perhaps if they have already bought together they want a dog/balcony/spare room/change of area. OK let's sell it and buy another one" you would think. Well here comes the problem. Most of the time first time buyers are tempted by the shiny newness and incentives of new build apartments. These are much the same as brand new cars when you drive them off the forecourt. You guessed it... even if they were to sell it 2 years later for exactly the same money you now have to factor in estate agency fees to sell, stamp duty to buy a new place and NO incentives whatsoever. Property number 2 becomes a LOT harder to move to financially speaking, unless you have received a somewhat handsome pay rise and can afford to borrow more or you've had some other cash lump sum windfall. So they can't sell, "no problem, we'll rent it out" they say. Nope. You will be unlikely to cover the mortgage repayments with the rent, maybe just, but you'd only get a consent to let. Eventually you'd have to switch over to a full on buy-to-let mortgage if you're not living there. And they are normally 75-80% loan to value maximum, with another fly in the ointment, the rent must be 145% of the interest only mortgage payment. VERY unlikely to happen given the high gearing!

The end

So in summary they're stuck. It's a quick fix to get young people on the housing ladder, but I think they will find that when life changes - and it does when you're young - you need to be flexible. And once you add up all the costs (solicitors, agency, stamp duty, valuations, list goes on) you're not (much) worse off renting. Besides, there's a lot of small print with these mortgages. You can't just have rented a room and proved a good track record, you have to have rented the whole property and been responsible for all the bills. Careful consideration should be made to commit to a mortgage - especially in a day and age where people of first time buying age can't even commit to a date. That said it's a great time to sell your property as so many people are keen to buy. If you are looking to make a move and venture to pastures new I'd love to hear about it. If you are after a free market appraisal with a view to marketing your property for sale or let I'd only be too happy to come and have a look at it. Email me at or pop your property details in my online valuation tool!

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