Sep
20
The news that Abbey is considering providing 100 percent mortgages again got me thinking about how sensible they are at the moment.
The Abbey know what they are doing and take a sensible approach to lending but I personally wouldn’t feel confident in taking out a 100 percent mortgage in the current house market.
After all if you have a 100 percent loan to value then you are in negative equity from the start, when you include all the other costs of buying a home.
I recognise that it is very difficult for young people to get on the housing ladder and 100% mortgages are often the only way to achieve that vital first home. However I wouldn’t take one for these reasons:
- To move into positive equity in your home, you need house prices to increase. As I said yesterday, house prices during 2008 will probably plateau.
- Predictions for the property market in the future are no longer as buoyant as they have been as houses are now so unaffordable.
- It is too early to predict what the impact of home information packs (HIPs) will be on the property market.
- The rates of 100 percent mortgages may increase to offset the greater risks to the lenders, particularly following the recent credit crunch problems.
To those desperate to own their own home, this is not good news, however it must be sensible to rent for a while, building up a 10% deposit in a high interest savings account.
Whatever happens to the property market, it is unlikely that house prices will increase faster than your ability to save a deposit, as has happened during the last few years.
