Barclays became the first bank last week to re-introduce a home loan without the need for a deposit, although the caveat is that you will need to have parents willing to put aside 10% of the purchase price for at least 3 years without touching it.
Mortgages without deposits were popular before the financial crash in 2008 and in fact many banks actually lent up to 120% of the purchase price of a property although, strictly speaking, these loans were in two parts – 95% guaranteed on the property and an unsecured loan of 25% on top. They became unfashionable and all but disappeared as banks tried to get their mortgage books in order and counter charges or reckless lending being made against them.
But it looks as though increased competition in the mortgage market has seen the need for more innovative products, hence Barlcays’ announcement last week.
The loan will be attractive to parents keen to help their children get their first foot on the housing ladder but who don’t necessarily have cash to give away for ever. Under the new scheme a guarantor, normally a parent, will have to put 10% of the purchase price of the property into a Barclays account with an interest rate of base plus 1.5%, so a total of 2% at the moment. The money will be held in that account for three years at which point it will be returned although Barclays has suggested that it may hold onto the money for longer if payments are not made regularly and that it could hold onto the cash if a property has to be repossessed and there is a shortfall.
It’s not a bad idea although many experts reckon that the discipline to save for a deposit before committing to a purchase is no bad thing, and others reckon that where Barclays has gone first others might follow and we might see a rush to more loans of this sort on the market again with the prospects of higher availability of loans pushing up prices even further.