Housing analysts have criticized a 100{06aeb1921e0b802d2bd9c766bc98fb11cc6a46c2b0593ed9c88a0e29cf417a34} mortgage launched by Barclays as “crackers”, saying the first mortgage since the crisis not to require a deposit will help people buy property they simply can’t afford.
Henry Pryor, a buying agent and housing market commentator, said the mortgage, which removes the requirement for first-time buyers and home movers to provide a 5 per cent deposit, was a “financial grenade”.
The principle is crackers. If this achieves the marketing hit that Barclays are after it’s a risky move. There are enough of us who remember who got us into the septic tank of financial crisis in 2008,” Pryor said.
“I find it inconceivable that the Bank of England who have been handed additional powers don’t step in and put a call into Barclays this morning and say, ‘Tell us the headlines are wrong and that this isn’t a 100 per cent mortgage,'” Pryor said.
In the past, a 5 per cent deposit would have been required from a buyer of a new property. Under the Barclays scheme, first-time buyers do not need to supply a deposit themselves. The deposit has been replaced by a “helper contribution” from a relative or guardian equivalent to 10 per cent of the purchase price.When the buyer takes out this mortgage, the family helper opens a Barclays account linked to the mortgage in which they deposit savings equal to 10 per cent of the final price of the house. After three years, the money in the account is returned to the family helper with interest.
Alice Martin, a researcher at the New Economics Foundation, said the scheme showed banks are now attempting to “paper over the affordability crisis” by making it easier to recycle money earned off the property of the parent, through another property for their children.
“It makes the gap between housing haves and have-nots wider, giving a leg up for a handful of people with parents able to help them in this way,” Martin told The Independent.
The scheme was introduced the day after Legal and General released statistics showing that ‘the bank of mum and dad’ finances 25 per cent of all mortgage payments.
Analysts said the scheme was a risky strategy similar to the financial crisis, when Northern Rock and other lenders were offering mortgages of more than 100 per cent without requiring a deposit.
Pryor said he expected other lenders to start offering similar products again. “They will have to, because they are competing with one another in a tough market,” he said
Source: The Independent