100% mortgages make a return – if you are super-rich

10 June 2020

Lloyds and Halifax launched 100% mortgages last year, but they have since been pulled

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With the onset of the coronavirus pandemic lenders have been busy pulling mortgage deals from sale.

First-time buyers have been particularly hit, with lenders scrapping mortgages which require a low deposit.

However, it is possible to get a mortgage with no deposit at all, so long as you happen to be one of the super-rich.

High net worth mortgage broker Enness Global says that it has seen a number of 100% loan-to-value (LTV) products return to the market via private banks in Switzerland.

However, buyers will typically need to invest 35% of the loan amount with the bank instead of paying a deposit.

The minimum loan available is £5 million, with rates in the region of 1.75%. This drops to below 1.5% if the assets under management with the bank exceed the £10 million mark.

Many high-net individuals will not want to go through the rigmarole of shifting their assets around to secure a mortgage. So why do the super-wealthy need this 100% LTV product?

Group chief executive of Enness Global Mortgages, Islay Robinson, says that investing allows clients to earn money that they would not get with a traditional deposit.

He says: “This type of product does offer benefits for those willing to do the leg work to secure it. In essence, the money they invest with the bank lands on the other side of the balance sheet. So they will have the mortgage borrowing on one side, and the money placed with the bank on the other side.

“It then becomes a win-win for both the bank and the client in the sense that it provides the bank with some money to play with, in what are tough financial times, while the client’s money keeps on earning for them instead of being ‘dead’ money tied up in a deposit.”

100% mortgages

Saving for a deposit is usually seen as the biggest hurdle to buying a property.

According to Halifax, the average first-time buyer requires a deposit £46,187. Meanwhile, the average price paid by a first-time buyer for a property is £231,455,

A 100% mortgage covers the whole cost of a property and means you do not have to pay a deposit, which can be appealing to first-time buyers as it lets them get onto the housing ladder immediately.

These mortgages were common before the 2008 financial crisis, when now-notorious loans of up to 125% of a house's value were available.

But following the crisis these deals dried up, as lenders began to view them as incredibly risky.

Both Lloyds and Halifax launched forms of 100% mortgages last year, but they have since been pulled.

The coronavirus pandemic has severely disrupted the mortgage market, resulting in banks pulling high LTV deals, making borrowing harder for first-time buyers and homeowners with less equity in their homes.

Lots of lenders have been pulling loans because of staffing issues caused by the pandemic and because they are having to deal with existing customers taking out mortgage holidays.

Options for first-time buyers

While lenders are pulling higher-LTV loans there are still some good rates out there for buyers with a 10% deposit.

An example first-time buyer has a 10% deposit and is looking to buy a £200,000 property over 25 years. For ease of comparison, we are assuming any fees are paid up front. Otherwise interest will be charged on the fees, which will add hundreds of pounds to the overall cost of the loan.

HSBC has a two year-fixed rate mortgage for buyers with a 10% deposit at a rate of 2.04%.

It costs £766 a month for an annual cost of £9,192. Once the mortgage ends it reverts to a standard variable rate (SVR) of 2.04%.

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