The troubling return of 100 per cent mortgages

Is there a greater weapon of financial mass destruction than the 100 per cent mortgage? Take out a loan equivalent to the full value of your home and it only takes one bad month for the Halifax house price index to land you in negative equity. 

If you have bought a new home, you will almost certainly be in negative equity from day one – as with a new car, a brand new home commands a premium which disappears the moment someone moves in and starts scratching the paintwork. But it is not just the borrower who needs to worry. When property prices fall, homes with 100 per cent mortgages secured against them cease to be fully-secured loans. This raises the prospect of the kind of situation we saw with so many banks in 2008/09, when many of their assets turned out to be tied up with sub-prime home loans.

What, then, to make of news that the Skipton Building Society has reintroduced 100 per cent loans? The organisation says that the loans will only be available to borrowers who have a good credit rating and who can prove that they have been keeping up with their rental payments for at least 12 months, but that is hardly reassuring.