Charcol puts a positive spin on 100% loans

An increasing number of homebuyers are taking out 100% mortgages and their growing popularity should bring mortgage costs down, according to broker John Charcol.

Ray Boulger, senior technical manager at John Charcol, said that with more people going to university and the fees they pay going up, many prospective homebuyers are entering their working lives later and with large amounts of debt.

‘Faced with the choice of either delaying a house purchase until the debt has been paid off and a new savings pot accumulated, or taking the plunge earlier with the aid of 100% plus home loans, it is unsurprising that greater numbers have more recently chosen the latter,’ he said.

Boulger believes that despite the fuss about mortgages that allow people to borrow as much as 125% or 130% of a property’s value, few people qualify for these. He argues that the average plus size loan-to-value is closer to 103%.

But the market for the product is increasing. ‘Alliance & Leicester have announced their plans for a “plus mortgage” of up to 125%, and we know of several other lenders who are likely to be launching 100% products this year,’ Boulger said.

‘The good news for borrowers is that as competition increases, the premiums usually associated with these kinds of mortgages should be reduced and I would expect to see the cost of borrowing 100% or more to come down by the end of
the year.’

Current 100% mortgage best buys include a five-year fix from Portman Building Society at 5.89% and a three-year fix at 5.99% – well below the standard variable rate of around 7.25%.