Alliance & Leicester has entered the 100 per cent plus market with its PlusMortgage product.
It combines a secured loan of up to 95 per cent of the value of the property with an unsecured loan of up to 30 per cent of the value and will compete with Northern Rock’s Together and BM Solutions’ Mortgage Plus.
The industry is welcoming the extra competition, claiming the product will give Northern Rock, which has dominated the market since 1999, a run for its money and offer first-time buyers more choice.
The Mortgage Practitioner sole trader Danny Lovey says: “More and more first-time buyers cannot find anything they can afford.”
Origen senior mortgage consultant Phil Colebourne agrees: “Property prices are outstripping first-time buyers’ salaries so many are never going to get there.”
Lovey says a shortage of housing is the major issue – too many buyers and not enough sellers.
Nationwide group economist Fionnuala Earley says the Government’s housebuilding targets remain low. There are around 223,000 new households formed every year but Earley says: “With current rates of housebuilding running at around 200,000 per year, this leaves a shortfall of over 20,000. With higher immigration assumptions, the annual projection increases to 255,000 per year, making a shortfall of 55,000.”
Lovey adds that the continued expansion of buy to let is also taking houses away from first-time buyers.
Advisers feel there is room in the market for A&L’s PlusMortgage.
BM’s Mortgage Plus requires the borrower to put down a 5 per cent deposit while the other lenders allow borrowers to use the unsecured loan for the deposit. Advisers feel this alienates the majority of FTBs who cannot come up with the lump sum.
Lovey says: “BM’s product is not competitive. I think it is nonsense that you cannot use the unsecured part to fund the deposit. Nine times out of 10, it will not work.”
London & Country mortgage specialist James Cotton says other debts and expenses make it almost impossible for many FTBs to save for a deposit. He says: “You would assume people looking for this type of mortgage do not have a lump sum to put up. There are a lot of people out there with good jobs, good salaries but cannot save up the £20,000 or so deposit.”
But Cotton says if a first-time buyer has the deposit, then BM’s rates are very competitive.
The 100-per-cent-plus mortgages still have significant risks so advisers are commending A&L for selling its product exclusively through intermediaries. Northern Rock and BM also sell direct but encourage borrowers to seek advice.
Homeowners Mortgages chief executive Mark Chilton says: “This area fulfils very specific requirements and because of this it favours intermediary rather than direct sales. It is important that people recognise the implications of what they are getting themselves into.”
Lenders have significant risk to deal with as well, particularly with the unsecured part of the deal, which advisers cite as the main reason that only three big lenders have taken the plunge.
Lovey says: “It is risk assessment and lenders are pretty conservative animals.” But Cotton believes that other lenders will follow. He says: “There are only three big lenders in there and still a lot of first-time buyers in need of help. BM Solutions and A&L have come up in a relatively short space of time so it would not surprise me if others moved in, particularly if A&L shows that the product is doing well.”
Lovey claims a similar product designed for slightly sub-prime borrowers would be very popular. “There is a hole in the market for nearprime 100 per cent-plus for the people with minor indiscretions that other lenders knock back.”
But Chilton says this area has accounted for a lot of the problems in the crisis-hit US sub-prime sector so it would take a very brave lender to take this on.