The return of the 100% mortgage

by Ed Bowsher on 02 October 2009  |  0 comments
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Clydesdale Bank is offering a 100% mortgage! But it's only for a very small number of people. I don't think this is a good idea.

I had thought that it would be a while before we see 100% mortgages again, but it seems they're beginning to return. 

A lovemoney.com user posted on our Q and A platform today with news that he'd been offered a 100% mortgage by Clydesdale Bank! I was very surprised to read this, but we've checked it out and it appears that Clydesdale is indeed offering 100% deals to a very select group of borrowers. 

Basically, if you're buying a flat in a selection of new build developments in the UK, we believe Clydesdale may be willing to lend you 100% of the sale price. We think there's a 3-year fixed rate deal on offer at 6.99% (with no fees) or a variable rate offset that is currently at 4.74%. 

6.99% is a decent rate in the current market although first-time buyers can get better deals with 10% or 15% deposits.

I can understand that Clydesdale wants to help first-time buyers get on the housing ladder. But I don't think this is a smart move. New build developments of flats are notoriously risky because it's hard to value the flats and their price often falls immediately after they're purchased. What's more, house prices may fall across the board next year. 

So there's a real chance that Clydesdale may be luring first-time buyers into negative equity. 

Buying a new build flat with a 100% mortgage is too risky in the current climate. Clydesdale shouldn't encourage people to take that risk. 

In 2009, it's best for first-time buyers to focus on saving a deposit so they can pick up a market-leading deal such as Royal Bank of Scotland's 5-year fixed-rate deal at 5.99%. (You need a 10% deposit to get this mortgage.) 

I urge Clydesdale and its developer partners to think again.

If you want to read the other side of the argument check out some of the comments on the Q and A thread.... 

Clydesdale Bank made the following comment:

"Clydesdale and Yorkshire bank have a strong track record of supporting customers during these difficult economic conditions and are continually looking for new ways to assist homebuyers in today's market. In partnership with a small number of local developers, we are currently piloting several initiatives including shared equity schemes, fee-free mortgages and, in certain cases, higher loan to value lending. All applications are reviewed on a case by case underwriting basis and depend on the individual circumstances and property involved."

Postscript: Strictly speaking, Clydesdale's isn't the first 100% mortgage I've come across since the crunch. Nationwide did say earlier this year that it would provide 100% (or larger) mortgages to existing borrowers who were struggling in negative equity. I think one or two other lenders have followed that lead. I thought that was a reasonable and generous move.

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