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Michael Moore’s Newsletter Editorial

1st February 2019

Some weeks ago I mentioned in one of my Newsletter editorials that I expected the property market to continue its inexorable rise as a consequence of the low interest mortgages that are available. Lenders appeared to be launching ever-more competitive mortgages in an effort to win business from one another. My expectations were not unfounded. In fact, I see Lloyds has introduced a 100% mortgage this week, specifically for first time buyers. Unlike the Help to Buy Scheme supported by the Government for first-time buyers of new-build homes, Lloyds are specifically targeting the second-hand market.

The Help to Buy Scheme provided a stimulus to the new-build market, which resulted in builders inflating asking prices which created some super-normal profits for their shareholders. With few second-time buyers able to afford the same new-build properties, many of the first-time buyers who purchased using the scheme have found themselves with no second-time buyers when they came to sell, with many urgently needing sales resulting in negative equity for the original first-time buyers.

The new scheme from Lloyds is not a replica of the 100% loans which existed prior to the 2008 recession. The pre-2008 mortgages contributed to the collapse of the banking world due primarily to indiscriminate lending. Lloyds’ new 100% loans have to be ‘backed’ by the ‘bank of mum and dad’, which will underpin the banks security. These are not the same as ‘gifted deposits’; parents have to lodge 10% of the property’s purchase price in a savings account with Lloyds for a minimum of 3 years. The account bears interest at 2.5% gross (which isn’t poor in these low interest-rate times) and if their son or daughter doesn’t fall into arrears or miss a mortgage payment in any of the first 36 months of the mortgage, the parent can withdraw their deposit in full, to do with as they please.

Many of our sales over the past two or three years have been to first time buyers with ‘gifted deposits’, which is very nice if mum/dad can afford to give their child a lump sum and not miss it. I’m sure there are many parents with money in savings account that they would happily use to support their child with, but they cannot afford to give it away. This is a very good compromise.

Some may say that there have been 100% Guarantor Mortgages in the market for a while. But Guarantor Mortgages require a long-term guarantee commitment by parents, which is not ideal. The Lloyds offering limits the ‘guarantee’ to 36 months – not long in the property market.

In November last year the Building Societies Association ‘suggested’ more lenders should look at 100% mortgages again. Following the banking crisis financial institutions have been prohibited from such loans without guarantees. I suspect this Lloyds offering will be one of many imaginative products we’re going to see in 2019.

More competitive mortgage products available to buyers of second hand property can only lead to one thing – an inexorable rise in property prices.

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