Aldermore became the third lender to launch a 100% mortgage deal for first-time buyers or homebuyers yesterday with a guarantee from a parent, grandparent or guardian.
The lender requires 25% of the mortgage to be secured through a charge on the guarantor's own property and Aldermore's Family Guarantee Mortgage is fixed for three years at a rate of 6.48%.
However, borrowers who want to remortgage to a better rate in the future could find it difficult to do so under the same product terms, said Fahim Antoniades, group director of Mortgage Centre IFA.
"As it stands, there are not many lenders who are offering this type of product in the market," said Antoniades.
He said there is one way in which borrowers could remortgage, but it would require two mortgages to get a cheaper rate overall.
"Firstly, the borrower's parents could borrow 25% on their property. Once they have the cash, they can gift that to their child who could use it as a deposit and apply for a 75% LTV mortgage. This would help their child get on a better mortgage rate than the 6.48% being offered by Aldermore."
Richard Adams, managing director of the Stonebridge Group, said that while 100% guarantor mortgages can be tempting for first-time buyers, they can instantly put them into negative equity.
He said: "One problem we have in this country is house prices. A 100% mortgage means any fall in house prices puts the borrower in a position where their mortgage is bigger than the value of their home. This could essentially stop them from moving home or selling up.
"For those who consider a deal like this to get on the property ladder, they should make sure they're happy to live in their property for the long-term, because they could be there for a very long time."
A spokesman for Aldermore said: "If house prices drop at all, clearly there will be a negative equity issue. But it all depends on your view on where we are in terms of the housing cycle and where house prices are going to go from here.
"Looking at all the different house price indices, there is a widespread view from analysts that we have hit the bottom of the market and the way forward from here is that we will see house prices remain flat for a period and then they'll start going up.
"The important thing to bear in mind here is that this product is aimed at people who want to get a foot on the property ladder and who are looking for a long-term housing option. If the borrower stays in their property for the next three to five years, there could be a chance that house prices will have recovered by that stage."
Adams added the market still offers good deals for first-time buyers with small deposits and 100% LTV deals are not always the best option.
"The general rule of lending is that the smaller deposit you put down, the higher the mortgage rate you pay.
"With the Aldermore deal, the borrower has to pay a rate of 6.48%, yet if they just saved a 10% deposit, they could get onto Yorkshire Building Society's three-year fix at 4.69%. In this case, the latter is a better option."
The market has seen a few other lenders launch 100% LTV mortgages including Northern Bank and two small building societies, the Tipton & Coseley and Marsden. However, each deal comes with a particular set of criteria.
The Northern Bank 100% LTV deal is the only 100% deal which is not a guarantor mortgage, but it is only available to its current account-holders in Northern Ireland.
Marsden Building Society offers a family offset deal available up to 100% LTV. For a borrower to qualify for the deal, they must have a family member willing to put up at least 20% of the property's value in a charged savings account with the society.
Meanwhile, the Tipton & Coseley 100% deal offers a family assisted discount rate mortgage. It's only available for Midlands-based properties and a collateral charge is taken against a family member's property. The collateral charge can only be removed once the LTV falls below 75% and the borrower's income is high enough to satisfy affordability criteria.
While there's no doubt the likes of Northern Bank and Aldermore are trying to provide a solution to a problem in the market, only time will tell whether guarantor mortgages can really help push the market forward.
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