Struggling homebuyers offered '100pc mortgages' in new pilot scheme
A mortgage offering struggling families and first time homebuyers the opportunity to borrow the full cost of their property has been launched by Aldermore.
The fledgling bank, a new entrant for home owners and small businesses, is offering the so-called 100 per cent mortgage at an interest rate of 6.48 per cent, fixed for three years. But the Family Guarantee Mortgage, available to first-time homebuyers and movers aged over 25, requires a relative to guarantee any borrowing above 75 per cent by putting up the family home as collateral. It is the first bank to offer the controversial “deposit free” mortgage in England and Wales, three years after it became extinct in the wake of the credit crunch when property prices collapsed.
Last month Northern Bank, which operates in Northern Ireland, started offering borrowers the chance to buy a property without any savings behind them. Critics pointed out the loans were irresponsible, placed young people in a potentially difficult financial position and over inflated the rental market.
But supporters said it was one of the few ways first time homebuyers, struggling to get a foot on a property ladder, would be able to achieve the dream of owning their first home. Charles Haresnape, Aldermore's managing director of residential mortgages, said large deposits generally required by the majority of high-street lenders had resulted in first-time buyers becoming "disfranchised" from the housing market. “We believe this is the single biggest issue facing first-time buyers and it needs to be addressed head on if the UK's housing market is to have a chance of recovery,” he said. "Family support in the form of gifted deposits has become commonplace and is widely accepted by most lenders. “The Family Guarantee Mortgage gives much greater flexibility, enabling guarantors to retain savings and instead provide a guarantee, requiring no cash deposit.”
Under the pilot scheme, buyers will only be able to take the mortgage, to be issued through Arun Estates Connells Group, and 3mc, on a repayment basis. The bank, set up in the wake of the financial crisis in 2009, said they will also need to prove they can afford monthly payments on the whole amount borrowed.
Meanwhile, the guarantor, usually a parent or grandparent, will also have to prove they can afford repayments on the amount they are proposing to guarantee. If the loan is defaulted it could mean they also risk losing their home. The guarantee expires after a decade, leaving the buyer with sole responsibility for the loan - which has a maximum size of £250,000 - over the next 25 years.
Other rules stipulated by the bank include a non-refundable booking fee of £299 and a completion fee of £999.
