Aldermore’s 100% home loan is available if a family member is willing to guarantee any borrowing above 75%
A mortgage offering homebuyers the chance to borrow 100% of the cost of their property has been launched by Aldermore bank.
The Family Guarantee Mortgage is the first home loan available to buyers without a deposit since the credit crunch. However, the deal, which is available to first-time buyers and movers, has an interest rate of 6.48% and borrowers must find a relative willing to guarantee any borrowing above 75%.
Aldermore’s managing director of residential mortgages, Charles Haresnape, said the large deposits now required by most lenders meant first-time buyers had become “disenfranchised” from the housing market.
He added: “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.
“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.”
The loan, which will be piloted through three distributors – Connells Group, Arun Estates and 3mc – will only be available in England and Wales.
Buyers will only be able to take the mortgage on a repayment basis and will need to prove they can afford monthly payments on the whole amount borrowed. The guarantor, typically a parent or grandparent, will also have to prove they can afford repayments on the sum they are guaranteeing.
The maximum loan size is £250,000 and the minimum age of the borrower must be 25. There is a non-refundable booking fee of £299 and a completion fee of £999. The rate is fixed for three years.
Haresnape said: “We have carefully considered the needs of the guarantor, resulting in a guarantee that is capped at the originally agreed amount. The guarantee can also be repaid at any time, or released if the loan-to-value (LTV) on the mortgaged property falls to 75% or lower.”
After 10 years the guarantee expires, leaving the buyer with sole responsibility for the loan.
Recent mortgage lending figures show first-time buyers are still thin on the ground, with the Council of Mortgage Lenders reporting that just 18,100 loans were advanced to new entrants to the housing market in the traditionally busy month of June.
House prices that are still high relative to incomes in many parts of the country are part of the problem, but brokers said a lack of mortgage supply was also a factor.
David Hollingworth of London & Country mortgages said: “Deposit has been the big issue for borrowers, although we are seeing a slow move towards higher LTV mortgages.
“This is not suddenly going to open up a massive first-time buyer mortgage because some buyers will be sitting tight, but for someone who has seen a place they want and has decided it is the right time for them to buy, this could prove a solution.”
Ray Boulger, senior technical manager at mortgage broker John Charcol, said the deal highlighted how “disfunctional” the mortgage market had become, as unsecured loans were now being offered at a cheaper rate than home loans.
He said Aldemore’s mortgage was a welcome innovation, but expensive, and added: “It seems to be a fantastic deal for Aldemore because they are effectively offering a 75% mortgage at 100% rates.”
Boulger said other similar deals were available with much more competitive rates. Bath building society, for example, is offering a loan of up to 95%, with parents guaranteeing borrowing above 80%, at a rate of 5.29%.
“Everyone looking at these deals should see if they could find the extra 5% that clearly gives them access to a cheaper rate,” he added
