There is some good news for Britons interested in buying property. Barclays has reinstated the no-deposit mortgage. It has become the first high street bank to introduce this since the 2008 financial crisis.
The move is the latest indicator of banks opting for riskier lending and is in contrast to the majority of banks who currently insist on a deposit of 5 to 10% of the property value before offering a mortgage. The move by Barclays means that it will not take any deposits and will instead grant loans equal to 100% of the property value under mortgage loans.
The new product will be provided by Barclays under its "family springboard" mortgage, which previously required an interested buyer to pay a 5% deposit, have a guardian — usually the home buyer's parents — and deposit cash equal to 10% of the purchase price into a savings account linked to the mortgage. However, now while the deposit has been scrapped, Barclays says the mortgage still requires the backing of a family member or a guardian.
The bank said the guardian should keep the same 10% amount for three years in the linked savings account, called the "helpful start" account. It would, however, return the amount with interest provided borrowers are making their mortgage repayments on time.
The bank has also increased the maximum loan amount home buyers can borrow. For example, customers earning more than £50,000 (€63,280, $72,662) annually will now be able to borrow up to 5.5 times their income, up from the previous 4.4 multiple.
The no-deposit mortgage is nothing new. It was offered by several banks before the financial crisis. The defunct British bank, Northern Rock, was in fact known for its "Together" mortgages which provided 125% of the property value. However, regulators have since clamped down on such risky lending.
Charlotte Nelson, of consumer site Moneyfacts said: "We haven't seen a resurgence of 100% mortgages; I don't think regulation would allow that. I don't think it's something many other banks will take on. If they're seen to be lending at 100%, even with a guarantee, it doesn't look great. Seeing 100% deals back on the market can come off as negative."
However, according to brokers, the 10% deposit by guardians reduces the risk to Barclays. Ray Boulger, of broker John Charcol said: "It's really good news a lender is actually coming out with something like this. It protects them in the event things go wrong while making life easier for parents."