Pink Home Loans has introduced a 100 per cent mortgage that has a 1.5 per cent discount for the first year.
The mortgage is available for loans of up to £150,000 and has a 1.5 per cent discount with a current payable rate of 5.25 per cent. Borrowers who pay this mortgage off during first three years must pay a penalty. This reduces by 1 per cent each year, from 5 per cent of the outstanding loan in year one to 3 per cent in year three.
Although property prices have increased faster than salaries, particularly in London and the South-east, affordability remains good and most borrowers would not need to borrow up to 100 per cent.
The Nationwide Building Society's monthly review of house prices for August 2001, shows borrowers in London put, on average, 27 per cent of their incomes towards monthly mortgage repayments, compared to 63 per cent in 1989. Borrowers in the North put 14 per cent of their wages towards their mortgage repayments, compared to 30 per cent in 1989.
For borrowers without any deposit 100 per cent mortgages provide a means of getting on the property ladder. According to Moneyfacts on September 6, 2001,the most competitive interest rate for 100 per cent mortgages of this type is from Norwich Union at 3.99 per cent. The least competitive is from Royal Bank of Scotland at 5.74 per cent. This places the Pink mortgage somewhere in the middle of the scale.
The Norwich Union mortgage with a current payable rate of 3.99 per cent has a 3.25 per cent discount until November 1, 2002. If borrowers pay the mortgage off before November 1, 2004, they are subject to a decreasing penalty like Pink Home Loans. In years one and two, this amounts to 3 per cent of the amount repaid, reducing to 2 per cent in year three, which is lower than Pink Home Loans.