A recent study by YouGov concluded that 48% of British people think lenders should bring back 100% loan-to-value (LTV) mortgages. In comparison, 20% are unsure, and 32% think it’s a bad idea. The country, then, is split on how to cure the worsening housing crisis, but what exactly are 100% LTV loans and why does half of the country favour them?
What are 100% LTV loans?
To break it down, LTV means the ratio of the loan to the value of the asset it is used to buy. In terms of mortgages, it is used by banks and building societies to represent the ratio of the value of the mortgage as a percentage of the total appraised value of real property.
For example, if you took out a mortgage with a 95% LTV, this will mean the loan will cover 95% of the value of the property, and you would need to cover the remaining 5% deposit yourself. Typically, in the UK, the average mortgage has a 75% LTV, but this is highly dependent on location.
A 100% LTV would see the bank cover the full cost of the house, helping more people onto the property ladder who cannot afford to cover the deposit themselves. This comes with its own positives and negatives, though.
Why do 50% of the UK Want 100% LTV
The most obvious positive with 100% LTV loans and mortgages is that it would increase the number of homeowners in the country by allowing people to purchase without a deposit. Young people, who struggle to save amongst a market of high rent, are often unable to cover the fees of a deposit, especially if their parents are not financially strong. The “bank of Mum and Dad” is, by and large, uncommon in the United Kingdom.
With the housing market stagnating, this would be a simple remedy to stimulate house purchases and the market. The 100% LTV would be immensely popular in areas with high employment rates but average wages struggling against high rents, as home-owning would become the cost-effective option.
What Are the Arguments Against It?
It all sounds good on paper, so why are 32% of people against it? Simply put, it puts all the risks on the lender and, in a post-Crunch world, people are anxious that this lender-risk may cause a financial crisis to happen again. Northern Rock, the infamous bank who is blamed as one of the chief instigators in the UK recession, became renowned for their 125% LTV loans which, nowadays, seems like total lunacy to many.
With Brexit around the corner, the whole nation is a little antsy when it comes to risky economic moves. Nobody really knows how our transition out of the EU will affect house prices, so banks are not willing to place their entire loan against homes which may plummet in value.
So, Do Young People Want 100% LTV Mortgages?
Strangely enough, the YouGov poll revealed that young people supported the shift to 100% LTV less than older people – 46% of those aged 18-24 responded positively compared to a higher percentage of 49 for those aged 65 and over.
The discrepancies in age suggest the path to 100% LTV loans aren’t clear cut and, not-surprisingly, depends on a multitude of economic and geographical factors, particularly the difference between London and non-London properties.
Overall, the push to 100% LTV comes from too little banks offering 95% loans, with many falling to 60-75%. Thankfully, our team at Ignite Property Finance are expert residential finance brokers and we regularly help source competitive loans of up to 95% LTV for first time buyers.