100% mortgages won't help you

There are things happening in the money world that you need to know about if you're hoping to turn your business into an income generating machine one day.

Let’s get cracking these ‘things’ one by one starting from 100% mortgages and how they will affect first time buyers.

Skipton Building Society has just introduced 100% mortgages so crack open a bottle of Prosecco as it seems you’re buying yourself a new gaff.

And why the hell wouldn’t you? You don’t need any deposit to move out of mum and dad’s nest and start up on your own in the world. No more queuing for the bathroom or not walking around naked with your other half.

Here’s the deal.

Skipton Building Society or any other lender who will follow with this product are not doing this out of the goodness of their hearts.

Sorry to be the bearer of bad news.

And here is why.

We've already got 95% loan to value (LTV) products on the market, which means that you only need 5% deposit to buy your first home.

Unless you're living in London, you can find house for £120k - £150k in most places up north, but to give the fairest estimation let’s use UK wide averages.

The latest average house price in the UK is £259,700* so with the previous 95% LTV mortgages average first time buyer had to save just shy of £13,000. You might not have that type of money chilling out in your wallet, but it’s not unachievable either.

Obviously, there is massive distribution on the lower and higher end of that average. It’s a blunt metric so work out the 5% of the average house prices where you live and plug that figure in here to play along.

Let’s take it back to basics and I’ll walk you through my thinking so I’m not just talking at you, but rather discussing it with you, or as much as that’s possible through written word.

100% LTV mortgages are only helping people who already can't scrape 5% deposit, that means they have very little savings either through lack of opportunity, adequate skills, motivation or many different challenges in life.

The property market these people are being encouraged to join is already inflated. The prices of the properties have been rising steeply since 2013, they exploded during the pandemic thanks to almost £900 billion pumped into UK economy just in 2020.

Now we’ll have even more first-time buyers going out and shopping for bricks and mortar.

Which properties they will be looking at?

This is a rough guide but usually it’s the lower end of the property market that is going to be the most crowded and in demand, not the higher end. These properties will have the most competition. The most people ringing the estate agents putting offers for the same houses.

Let’s say you’ve set your heart on a property worth £200,000 (and as we discussed this is already inflated) but you have 3 or 4 other people wanting to buy the same house. And then you end up in bidding wars. To make your dreams of roasting marshmallows in front of the fireplace on a cold, windy night come true you might need to shell out £215,000.

But at least you have a place you can call home, right?

 Well, yes, and no…

This artificially increased competition has inflated the already-inflated prices further.

Yes, you have your own home, but you have zero equity in it and when there will be correction in the house price market, you’ll be swiftly taken into negative equity territory.

  Cue in the familiar aroma of 2008 filling the air

Note, I said WHEN there will be a correction, not IF there will be a correction.

What’s going to happen to these first-time buyers if the property prices drop by a mere 15% in the next two years and they need to renew their mortgage?

The aroma of 2008 is nauseating now

Assuming the lender will be happy to offer them the same 100% LTV mortgage they will have to find 15% of £215,000 pretty much overnight. But hey, what’s £32,250 between a lender who makes no exceptions and a desperate homeowner, right?

And if the homeowner doesn’t happen to sleep on £32,250 stuffed in his pillow, his house will be repossessed.

There’s another solution for our first-time buyer. He can always start saving furiously as soon as he buys his first home. Something that he hasn’t been able to do before.

So what to do? What to do?

Do you wait until the property market does correct and you buy then?

Or do you buy now and start saving?

Because the one thing that I can guarantee you - using these 100% LTV mortgages, and then not saving as well is stupid, it’s naive, and will drop you in the deep bucket of shit you’ll need Prozac to crawl back from. You will need those savings when there is a correction in the market, there is no doubt about it.

Your alternative option if you are a first-time buyer is to get your business in a damn good shape. If you’re thinking of investing in a coach or a program from the profits in your business, think whether you need it right now.

If you’re waiting until the market corrects with buying you have to be prepared that the lenders will become way more picky. Their criteria for mortgages will be higher than it is right now.

And that's something that you need to be aware of.

I also want to point out that the figures we looked at here are rather optimistic. In 2008 house prices fell by around 20% and again that was an average meaning the drop of prices was more likely sitting between 15% and 25% depending on where you live.

The figures we discussed here are not the worst-case scenario.

And if you are hoping to buy your first home now, you need to consider all scenarios, including the worst case one.

Looking at 100% LTV mortgages as we have just done here it’s difficult to see how they’re helping first-time buyers.

Decide for yourself.

I don’t believe the lenders are doing this out of the goodness of their heart.

PS. If you have a money conundrum and you want an expert to talk to and walk you through options you didn't even know existed then a) I'm your gal and b) The Money Power Hour is exactly what you need.

• Want to make the profits from your business start paying you Devilishly Passive™ income?

• Want to invest but you have no idea, no will-power and no time to figure out where to start?

• Want to buy a house but not sure how to best do it in the current financial sh*t storm?

The Money Power Hour is £147 until 1st of August or until I change my mind - whichever comes sooner.

It doesn't have a webpage yet, so if you want my undivided attention on you and your conundrum, email me on kat@lazyprofitlab.com with MONEY POWER HOUR in the subject.

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* UK House Price Index May 2023 https://www.hometrack.com/wp-content/uploads/2023/05/UK-House-Price-Index-Apr23-HT.pdf