With news breaking last week about a prominent high-street bank offering 100% mortgages to first-time buyers, a Burnley estate agent has encouraged house-hunters to be wary of what appears to be too good an offer to refuse.
Offering a 100% mortgage of up to £500,000 which can then be arranged over a period of up to 30 years, Lloyds Bank - which has a branch on Manchester Road in Burnley - are looking to attract new buyers who are unable to stump up the funds for a deposit due to increasing rents and stagnating wage packets (between 1997 and 2016, the average house price rose by 259% but median earnings only increased by 68%).
Commenting on the new 100% mortgages, Ian Bythell, Residential Director at Petty Estate Agents, said that buyers should be wary, pointing out that for someone desperate to break out of Generation Rent and land themselves their dream home, a family member is obliged to deposit 10% of the home's value into a Lloyds Bank savings account, meaning that the new scheme will only be available to those who can count on the bank of mum and dad.
“It may seem like a good deal at first, but it is subject to various conditions and also assumes that you have a close family member willing and able to put a lump sum worth 10% of the purchase price into a savings account, which not every ones does of course, and for them to be willing to have that raided if you miss any payments," said Ian.
Given that the average price of a house is now comfortably over £200,000, being able to rely on a family member effectively lending and trusting you with more than £20,000 is not a position many young first-time buyers are in, and even though the minutia of the programme will see said family member earn a solid interest at 1.5% above the base rate on their ostensible deposit, it is unlikely to be an option for most.
“I can understand how this may seem attractive to some first time buyers looking to get onto the property ladder," said Ian. "But people need to think very carefully before taking on a mortgage of this size, especially given the uncertainty of Brexit and what that could do to the market.
"In the worst-case scenario if house prices go down, you could run into problems and very well find yourself getting caught in that negative equity trap and taking a financial hit, unable to move and with a mortgage debt higher than the value of your home," he added. "As the area's only Relocation Network Agents, our advice is to proceed with care."