Issues with 100% mortgages

There are some things in my career of 23 years that are so mind blowing, they are etched onto my brain for all the wrong reasons. Up there has to be one of the most jaw dropping bathrooms I have ever seen, which I saw over 15 years ago, but it still brings back raw memories.

This comprised of a full bathroom suite that was in a chocolate brown colour with gold glitter running through it and gold taps. To tip me over the edge, this was all lovingly topped off by a purple shag pile carpet – seriously.

Good idea?

What gets me every time is why would somebody actually think this was a good idea and then put it into the public domain? I thought I had seen it all when I saw this for the first time and I never felt it would be beaten. However I hate to tell you that purple shag pile carpet is back. But this time its long soft shaggy textures are being worn by a wolf, but this wolf has financial teeth that will potentially drive you to financial ruin. This time purple shag pile is back in the form of 100% mortgages.

100% for new builds?

I was invited to a seminar by a well known legal firm, where the keynote speaker was the chairman of a new company who was portraying himself to be the saviour of the housing market, by enabling buyers to secure 100% mortgages for new build homes. Before he had got into the second paragraph of his well-choreographed speech, me being me stuck my hand up to interrupt proceedings.

Ask the questions

I simply said that this all sounds great, however if buyers were so highly geared having taken on one of these 100% mortgages, what happens if the market goes against them? A few stutters later, the speaker said they had this covered as they would only give these loans to people who could afford it.

My hand went up again. ‘Surely the fact you need to give them a 100% mortgage means they can’t necessarily afford it? Did we not learn our lesson from 2008, that if people can’t afford these loans and are so exposed to any market fluctuations, that they will default?’ The response was ‘don’t worry we have this covered with insurance’. At this point I quickly realised I was in the lion’s den and those sat all around me were the very people who would be benefitting from this new setup – solicitors, accountants and of course new build developers.

Exposure risk

Whilst this new finance company was depicting themselves as the knights in shining armour to help people, I couldn’t help but feel that this was all highly precarious. Having so much individual borrowing leaves people highly exposed to the market and if anything should change in their lives, plus of course if they need further borrowing such as a credit card. Yes of course people need and wish to own their own homes, but this isn’t the right way. Do we wish to take a retrogressive step and put homeowners in a corner, where the smallest market fluctuation, will have an exponential impact on that individual?

What type of properties are right?

If we really wish to help those onto the housing ladder, why are we not building the right types of properties in the right locations? How many young first time buyers do you know who want a 3 bedroom house on the fringes of a town? We are not building or converting smaller properties because there isn’t any incentive from the government and therefore no money to be made.

So if like me you think purple shag pile carpet in your bathroom should be confined to the history books, then perhaps a 100% mortgages should join it too.