Gable Mortgages has launched 100% loan-to-value (LTV) mortgages for first- and next-time buyers.
The lender, which was established last year, offers five-year fixed rates for standard and new-build properties with no deposit needed.
In its standard range, Gable Mortgages will lend up to 4.49 times income, up to five times income for key workers, 5.5 times income for joint key workers and 4.5 times income for self-employed borrowers.
The standard five-year fix is priced at 5.95%, while the new-build option has a rate of 5.65%.
Fees on the standard mortgage start at £2,095 for properties worth between £125,000 and £200,000 and go up to £9,995 for properties with a value of between £800,000 and £1m. The fees cannot be added to the loan.
The new-build mortgage fees will be charged as a percentage of the purchase price. The product is applicable on homes being sold by the likes of Davidsons, Gleeson Homes and Genesis Homes.
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Loan sizes of £125,000-1m are available on terms of up to 35 years.
The product has early repayment charges (ERCs) of 5% in the first year, incrementally falling to 1% in the last year of the initial term. Gable Mortgages will allow up to 10% overpayments each year.
Borrowers must be at least 23 years old and no older than 75 years at the end of the mortgage term.
A ‘crucial’ option for first-time buyers… with risks
Nick Mendes, mortgage technical manager at John Charcol, said the product was a “crucial addition” to the options for first-time buyers, and closely following the 100% LTV mortgage launch from April Mortgages last week, showed that “lenders are starting to respond to the challenges faced by aspiring homeowners who are mortgage-ready in every way except for the deposit”.
Mendes said the “chronic shortage” of new homes was a fundamental issue in the UK housing market, which was unlikely to be resolved in the short term, so products like this offered an opportunity.
He added: “Zero-deposit mortgages can play an important role for renters who have strong, stable incomes and good credit histories, but have been unable to save due to the high cost of living. The fact that Gable’s deal is linked specifically to new-build homes also supports Government efforts to encourage take-up in that sector and stimulate supply.”
He said the five-year fix was a “key strength” as it offered certainty to borrowers.
However, Mendes said there were “important considerations”, such as being more vulnerable to house price movements and limitations on eligible property types.
Mendes added: “With both Gable and April now entering this space, there is every chance that other lenders will follow. Increased competition could lead to better pricing, more innovation and a wider range of options for first-time buyers. The demand is clearly there, and as lenders compete more aggressively at the entry level of the market, it is likely we will see more low- or no-deposit offerings appear in the months ahead.
“While these products will not fix the wider housing crisis, they are a crucial step in opening up access to homeownership for renters who have been locked out for too long.”
Joseph Lane, founder and director of Mortgage Lane, said there was “no denying the appeal of a 100% mortgage”, but such products did have “substantial financial and behavioural risks”.
Lane said: “First of all, there is the risk that those opting for a 100% mortgage – particularly those who’ve not needed to make lifestyle changes or sacrifices in order to save for a deposit – may lack the financial discipline needed that comes with homeownership. Saving up for a 5% to 10% deposit on a home ensures that buyers have a real stake in their purchase, and could possibly treat these newly released products as easy access to wealth or as a mere alternative to renting.
“Secondly, with 100% mortgages, buyers are starting with 0% equity in the property they are purchasing. If there is any kind of dip in the housing market and the home loses value, they may find themselves in negative equity, potentially trapping the homeowner and meaning they could take a financial loss should they need to move or relocate for any personal reasons, such as job relocation, health or family changes.”
This article was first published on YourMoney.com‘s sister site, Mortgage Solutions. Read: Gable Mortgages enters market with 100% LTVs
