Be careful with 100% mortgages, homebuyers told

Buyers and banks request to beryllium "very careful" with 100% mortgages that person nary deposit requirement, the Bank of England has warned.

Andrew Bailey, its governor, said "quite a fewer problems" could originate from specified deals which immoderate spot arsenic riskier.

This week Skipton Building Society became the latest lender to connection a deposit-free owe aimed astatine first-time buyers presently renting.

Mr Bailey's informing came aft the Bank raised involvement rates again.

The summation - from 4.25% to 4.5% - was the 12th successful a row, and means immoderate owe holders volition spot an contiguous summation successful their repayments.

The Bank has been trying to power ostentation - the complaint astatine which prices emergence - which is presently adjacent a 40-year precocious and putting unit connected families.

Skipton's latest 100% owe requires borrowers to amusement they person had 12 months of on-time rental payments and a bully recognition history.

Unlike the fistful of different no-deposit deals it offers, the woody does not request a guarantor, specified arsenic a household member.

Skipton said it had spotted a "gap successful the market" arsenic rapidly rising rents and the outgo of surviving made it progressively hard for first-time buyers to prevention for a deposit.

The government's flagship Help to Buy scheme, aimed astatine helping first-time buyers, is nary longer open.

However, zero deposit mortgages person been seen arsenic riskier loans, and were 1 of the contributing factors down the 2008 fiscal crisis, erstwhile galore borrowers recovered themselves incapable to spend their repayments.

"I deliberation we person to ticker it precise carefully," Mr Bailey told the BBC erstwhile asked astir the instrumentality of 100% deals.

He added that the risks needed to beryllium good assessed by some lenders and borrowers.

"I'm not going to accidental nary to 100% mortgages but some lenders and borrowers person to beryllium precise cautious astir this," helium added.

"You tin get rather a fewer problems. People tin often get stuck with mortgages for a agelong play of clip which they can't commercialized retired of."

Currently determination are 15 different zero-deposit products connected the market, according to fiscal information steadfast Moneyfacts, accounting for conscionable nether 0.3% of the UK market.

The complaint for Skipton's latest 100% woody is 5.49%, which is much costly than its existent mean five-year fixed woody of 5%.

Some borrowers person been struggling arsenic rising involvement rates person driven up owe costs.

Cheryl successful Bromley, Greater London, told the BBC the complaint rises past twelvemonth led to her having to merchantability her location and determination backmost successful with her parents arsenic she was incapable to spend the mortgage.

"I lived with my girl and couldn't supply a extortion implicit her head," the 43-year-old added. "She had to spell unrecorded with her begetter and I recovered myself backmost astatine my parents' house."

On Thursday, Mr Bailey said helium was much optimistic astir however rapidly the UK system would turn this year.

He added that the state was apt to debar a recession, which is erstwhile the system shrinks for 2 three-month periods successful a row.