First Active offers 'no deposit' 100pc mortgage
FIRST-time buyers no longer need to save a deposit before getting a mortgage.
FIRST-time buyers no longer need to save a deposit before getting a mortgage. First Active says it will give a 100pc mortgage to anyone who can repay it and charge no extra in rates or fees for the privilege.
Until now mortgages without down payments were available on a very limited basis, only to top professionals in medicine, finance and law. They were first offered by Ulster Bank two years ago and quietly replicated since by IIB Home Loans and, recently, First Active.
"The extension of 100pc mortgages to the mass market for the first time is going to shake up the market, I believe," said Brendan O'Hora, head of marketing with First Active. The previously eligible professions represented maybe just 5pc of the overall population, he estimated, whereas first time buyers generally make up about one third of all mortgage applicants.
The move does not breach any Central Bank guidelines but a spokeswoman for the financial regulator said it is up to lenders to ensure that borrowers have the capacity to repay and that borrowers should also consider possible changes in circumstances, such as illness or job loss.
Research consistently shows that the biggest barrier to getting on the property ladder is amassing a downpayment.
"The market's current minimum deposit of 8pc of the property value translates to 24k on a 300k house - that's a lot of money to pull together," Mr O'Hora said. The average house price nationally exceeds 330k. The key criteria to qualify for First Active's 100pc mortgage are that the applicant be in full-time employment for at least three years, and that the cost of repaying their mortgage be no more than 40pc of their take-home pay.
Applicants' mortgage repayment capacity will be stress-tested to ensure that they could still make their payments if interest rates rose by 2pc from current historic lows. Applicants can apply jointly, but guarantors are not allowed.
"We want to make sure borrowers can service the debt without being propped up," Mr O'Hora said.
First Active will not insist on having 100pc mortgage borrowers pay an indemnity bond that would cover First Active in the event that the property fell in value (from the sum it had lent) and the borrower walked away from it.
Those getting a 100pc mortgage have their choice from among First Active's existing mortgage options - a tracker, a fixed rate, or a current account mortgage - Mr O'Hora said. First Active's rates are not the most competitive, especially on its current account mortgage.
Mr O'Hora confirmed that there will be no effort to steer applicants for the 100pc mortgage towards the current account mortgage, an innovation whereby the balance in your bank account is treated as money paid off on your mortgage.
First Active's current account mortgage carries a rate of 3.3pc. Its tracker, at 1.25pc above the ECB rate, is 3.25pc. This week it lowered its fixed rates.