JEFF PRESTRIDGE: The surprise return of the 100% mortgage scares me

I hate to say it, but there is a hint of 2008 and an impending financial crisis in the spring air.

While depositors aren’t lining up to take money from a bankrupt bank as they did with Northern Rock more than 15 years ago, imploding banks in the US are making everyone here in the UK tense.

In addition, we have rising interest rates – one more increase to be confirmed tomorrow and more to come.

This means higher borrowing costs for everyone, whether homeowners, credit card users, or businesses (small and large).

Understandably, there are real fears that the economy is heading for recession as the Bank of England tries to squeeze the seeds out of raging inflation by curbing consumer demand. Cutbacks come first, not growth.

The final ‘whiff’ ingredient was provided yesterday when we saw the return of a product we thought had long since died due to its role in fueling the lending (and lending) excesses that fueled the financial crash of caused in 2008.

Yes, ladies and gentlemen, the 100 percent home loan is back. A clear sign, some would argue, that we are on the brink of another financial crisis.

Building society Skipton has decided to boldly go where other lenders feared to tread.

It has launched the ‘track record’ mortgage — designed to get tenants on the first rung of the housing ladder and ‘turn generation rent into generation purchase’.

Tenants can borrow up to 100 percent of the value of a home through a five-year fixed-rate loan. They are no longer beholden to greedy landlords, eager to jack up their rent. Instead, welcome to the homeowners club.

But rather ominously, Skipton’s launch coincided with news from Halifax that the housing market remains in a fragile state.

House prices, it said, fell 0.3 percent in April and it warned of “further downward pressure” for the rest of the year, amid lingering cost-of-living concerns and the specter of higher interest rates.

Hardly an ideal backdrop, I’d say, to launch a 100 percent mortgage.

One hundred percent home loans are fine when house prices rise, but not when they fall.

This is because with falling prices comes the return of negative equity – homeowners saddled with loans greater than the value of their properties and with very few options available when they need to re-mortgage.

As one real estate expert said, the return of the 100 percent home loan could lead to “buyers lugging their properties around and unable to re-mortgage until market values ​​recover.” In 2008, house prices fell by about 15 percent and it took until 2012 for them to recover.

Not everyone is nervous about the return on the 100 percent mortgage. Most commentators – mainly mortgage brokers – have praised Skipton, with one saying the move heralds a new era for the real estate market – ‘an era that removes barriers and creates opportunity’.

But they would say that, wouldn’t they? Their livelihood depends on shifting as many home loans as possible.

There’s no question that Skipton has put a lot of thought into its product, which includes checks and balances to ensure borrowers don’t overextend themselves.

The amount that starters borrow is therefore linked to the rent they have paid as a tenant. The loan they take out must lead to monthly mortgage payments that are equal to or less than the rent they have paid in the past six months.

They must also have an impeccable short-term credit record and pass strict affordability checks before Skipton agrees to borrow.

Mortgage broker L&C says someone with a qualifying monthly rent of £1,500 could potentially borrow £279,662 under the Skipton deal, with the loan set up on a 35-year amortization basis – an amount not much lower than the average cost of a home in the UK (£286,896, according to Halifax).

At the end of the initial five-year fixed-rate deal – priced at 5.49 per cent – L&C says the loan will have decreased by just over 5 per cent to £264,475. Where the borrower goes from is the million dollar question.

If house prices have stayed the same, they’ve built up more than 5 percent home equity — enough to find a new deal.

In fact, if prices have risen, a higher share of equity should provide them with more (and relatively cheaper) remortgages.

The problems arise when the value of the home has fallen. Then the options for remortgages can be severely limited after five years. It could result in much higher mortgage payments – perhaps selling the house.

Some experts don’t like 100 percent home loans, period. They argue that starters should always put down a deposit, in other words, play a role.

It’s a valid argument I presented yesterday to Charlotte Harrison, chief executive of home finance at Skipton and the mastermind behind track record.

Her view is that in the crisis of the cost of living, it becomes almost impossible for those who dream of owning a home to put money aside for a down payment.

So 100 percent lending should be an option available to starters. Currently, the average first deposit is around £61,000 – a staggering amount.

As for the danger of trapping young borrowers in negative equity, Harrison says this has been a “key consideration” and explains why the first loan has a five-year term.

“We want our borrowers to think long-term and not be alarmed if house prices fall in the short term,” she told me.

With the government debating whether to revive the Help to Buy scheme after it was closed to new applicants last October (with the exception of Wales), the support available for aspiring start-ups on the ground is pretty thin .

Discounts of up to 50 percent are available for first-time buyers on new builds through the First Homes scheme, while most lenders offer loans through the government’s Mortgage Guarantee Scheme that only requires a 5 percent down payment.

Perhaps Skipton will encourage other lenders to follow suit. But my verdict? Good product, Skipton, but bad timing. The smell of 2008 is in the air.

jeff.prestridge@dailymail.co.uk