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The whole sale market

Will Henley analyses the return of Abbey to the 100 per cent mortgage sector.

Two more lenders are offering 100 per cent mortgages in a bid to boost their share of the first-time buyer market.

Abbey, after well over a decade out of the 100 per cent market, is now offering no-equity loans up to £500,000.

The Mortgage Works is expanding its range to offer two-year, three-year and five-year fixed-rate mortgages up to 100 per cent loan to value.

Abbey for Intermediaries managing director Ricky Okey says he sees the deposit as a barrier for first-time buyers.

“When people save for a deposit, they end up dipping into it over time, so the discipline of saving for a mortgage is not as robust as it should be. You get into a never-ending circle of struggling to save. This is a part of the market where we should see some growth,” he says.

Mortgage brokers welcome Abbey’s move. Highclere Financial Services partner Alan Lakey says: “I am hopeful that this is going to mean that new lenders will come into the market.”

John Charcol senior technical manager Ray Boulger says: “It is certainly good news for consumers. The more lenders in the market, the more competition there is, and that will drive down prices.”

According to MoneyExpert.com, just 60 fixed mortgages, from a total of 17 providers, were available in May 2006 but today the market has more than doubled, with 127 products available and a further 10 providers.

In 2006 ,there were 24,614 loans valued at 100 per cent or more of the property’s value, representing just over 1 per cent of total property loans.

Moneysupermarket.com head of mortgages Louise Cuming believes that Abbey’s move indicates wider changes in the housing market and she adds it would be surprising if more lenders did not embrace “what was traditionally seen by highstreet names as a riskier lending area”.

Okey admits: “Abbey used to be a very recognised brand for first-time buyers but this is not a reputation that we enjoy at this moment. That is why we would like to exploit it in the right way.”

With improvements to systems to assess ability to meet repayments, 100 per cent mortgages are now seen as a relatively safe area of business.

MoneyExpert.com commercial director Pete Marshall says: “Lenders take each customer as they come and will weigh up their ability to pay repayments before committing to a deal”.

Okey says: “We take their monthly income, take away regular expenditure, and apply the cost of the mortgage for the individual. If there is a surplus, then we believe they can afford it.

Boulger says: “Abbey’s affordability calculation means you can often get a loan of up to five times your income. That will be particularly useful for higher-earners.”

The Mortgage Works director of marketing Andy McQueen says the 100 per cent market is all about offering greater choice. “When someone has a good idea, everyone else soon follows suit,” he says.

But potential borrowers need to recognise that unless they have a good credit rating, they may be unable to take advantage of these deals.

Cuming says: “Even if you have been late with just a couple of payments, it affects your ability to borrow. First-time buyers are not always aware of the importance of their credit status.”

There are still some significant risks with the 100 per cent market, not least the danger of negative equity if house prices drop. As interest rates rise, first-timers could find themselves with a loan they cannot afford.

Lakey says: “It is the classic Catch-22 situation. You go for a house and then find interest rates going up higher than you can afford. It highlights that you probably should not have borrowed in the first place.”

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