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100% Mortgages Make a Comeback as Housing Market Confidence Returns

Strategic Insights

— 2 min read

Renewed optimism in the housing market, coupled with predictions of slow but steady house-price inflation, has led to a resurgence of 100% mortgages. The London-based mortgage broker, John Charcol, has seen an increase in demand for these mortgages, with many lenders now willing to offer 100% loans to meet consumer demand. Despite the rosy prospects, the cost of these mortgages has not decreased, as the mortgage indemnity premium (MIG) remains high due to the huge payouts made during the recession.

Key Takeaways:

  • The 100% mortgage market has experienced a significant resurgence due to renewed confidence in the housing market.
  • John Charcol, a London-based mortgage broker, has seen an expansion of its 100% loan book, driven by strong consumer demand.
  • Lenders are now willing to offer 100% loans, as they recognize that house buyers will still borrow the 5% deposit from another source if not provided by the lender.
  • The mortgage indemnity premium (MIG) remains a significant factor in the cost of 100% mortgages, with premiums calculated as a percentage of the loan exceeding 75% of the property value.
  • The National & Provincial builds mortgage policy premiums range from £150 for 80% loans to £1,875 for 100% loans.
  • John Charcol has developed a 100% mortgage that avoids MIGs by splitting the loan between a lender and an insurer.
  • The insurer lends 25% of the loan at a higher interest rate, while the lender charges the 75% portion at a lower interest rate.
  • The partnership between John Charcol and Norwich Union lends at 9.95%, avoiding MIG premiums but increasing the cost of the loan over the longer term.
  • The cost of the extra interest from the 25% portion of the loan is £1,250 per annum, equivalent to £250 more than the entire MIG premium on a 100% £60,000 loan.
  • The suitability of the mortgage combination depends entirely on the individual concerned, and there are various repayment methods to make up a 100% mortgage.

Statistics:

  • The estimated time for the cost of the extra interest to overtake the cost of MIG premiums on a 100% £60,000 loan is five years.
  • The National & Provincial mortgage policy premium rates for 100% loans are Pounds 1,875.
  • The maximum cost of the mortgage indemnity premium (MIG) for a 100% loan on a £60,000 property is Pounds 1,875.
  • The interest rate charged by Norwich Union for the 25% portion of the loan is 9.95%.
  • The estimated annual cost of the extra interest from the 25% portion of the loan is £1,250.

Sources:

  • John Charcol, 071-611 7000
  • The Sunday Times, 1994

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