Government housing adviser defends 100% mortgages
A member of the Bank of England’s Monetary Policy Committee has taken up the cause of would-be homeowners who need to borrow 100% of the value of a home.
Kate Barker, who is also a Government adviser on the UK housing market, has publicly opposed Prime Minister Gordon Brown in his suggestion that such loans may be banned.
High loan-to-value mortgages have played their part in the housing market downturn.
Prior to the credit crisis, first-time buyers could avail themselves of loans of up to 125%, pushing affordability to its limits and leaving borrowers in danger of substantial negative equity.
However, Ms Barker is advocating a regulated market that can include 100% mortgages where circumstances allow.
She also comments that new lending criteria that demand large deposits may have been “overdone.”
Despite falling house prices, the much needed first-time buyer boost to the market is being prevented by lenders keeping their best deals for those with high deposits.
Recent research from Halifax indicates that house prices have become increasingly affordable in the past 18 months, but only for some.
For new borrowers with 30% to put down, the proportion of earnings spent on mortgage repayments has fallen from a peak of 48% in late 2007, to 31% in the first three months of 2009. The figures compare with a long-term average of 37%.
Meanwhile, the Council of Mortgage Lenders has reported that around 900,000 UK homeowners currently have some degree of negative equity.
However, the body points out that around two-thirds are facing a shortfall of less than 10%, translating as £6,000 for first-time buyers and approximately £8,000 for others.
The Council also argues that the outlook for today’s homeowners in negative equity is more positive than in the early 1990s slump because low mortgage interest rates present an opportunity to increase monthly repayments, or save.