How Have the 100% Borrowers of the Noughties Fared?
Written on 18 May 2023
100% mortgages which didn’t rely on family help were last available back in 2007 and I suspect a large majority of first-time buyers who borrowed 100% to buy their home will have been very pleased with the way things turned out for them.
It became almost impossible to get a mortgage with a deposit of less than 15% for several years from 2009 and so FTBs and others who needed a 90%, let alone 100% LTV, mortgage would in most cases have been frozen out of the purchase market for many years if they had not bought in 2008 or earlier. Hobson's choice in most cases would have been renting or living with parents for longer than planned.
As house prices fell 20% between Autumn 2007 and Spring 2009 many 100% borrowers would have been in negative equity for longer than they probably initially expected but against that if the alternative was renting they probably started off with mortgage payments not much more per month than they would have paid in rent. Then as Bank Rate fell to 0.5% by March 2009 they will have seen their mortgage payments fall when their initial mortgage deal ended (or even during it if they had a tracker or discount), whereas if they remained renting their rent would almost certainly have increased over the years.
Pre 2008 most new mortgage terms were for 25 years and assuming an interest rate of 6% with a repayment mortgage, 10% of the mortgage would have been repaid in the first 5 years. As house prices recovered after Spring 2009 few 100% mortgage borrowers will have been in negative equity after 5 years except those with an interest only mortgage who chose, even when interest rates fell, not to make any capital repayments.
Although many 100% mortgage purchasers will since have used the equity they accumulated as a deposit to move home, those who haven’t moved will have seen an increase in the value of their home, based on the Nationwide index, as follows, depending on when they bought:
Purchased
- Jan 2004: 93.2%
- Jan 2005: 71.6%
- Jan 2006: 64.3%
- Jan 2007: 50.3%
CPI inflation from Jan 2007 to Mar 2023 (latest available figure) is 59.8% and so on average anyone buying in January 2007 will have seen the real value of their outstanding mortgage decrease by nearly 60% as well as having a capital gain on their property of over 50%. The real value of the remaining debt for earlier purchases will have fallen even more, e.g. from Jan 2004 the real value of the outstanding mortgage has fallen by 70.0% and the average capital gain was over 90%.
Although past performance is no guarantee of the future and in particular we are unlikely to have another extended period where Bank Rate is sub 1%, in view of all the criticism of previous 100% mortgages it is interesting to look at how on average such purchasers are likely to have benefitted significantly financially.
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