Zero Deposit Interest only Mortgages

Seems rather opaque, but if I follow it correctly the scheme is a deferred interest loan to provide for a deposit on a property, with the mortgage provided by a third party provider, like Nationwide.

The interest on the loaned deposit is rolled up and is repaid to Proportunity when the property is sold.

Proportunity seem to be betting on the market continuing to increase and the profit from the sale being at least equal to or greater than the deposit loan.

The risk for the buyer is that house values may fall, and with a high loan to value ratio they will go into negative equity much quicker than the might have done with the accumulated debt.

Additionally, as the interest on the deposit loan increases their overall debt to Proportunity increases. If that happens the buyer will find themselves in a world of financial pain.

I suspect Proportunity will struggle to find any topline lenders like Nationwide to take on these mortgage schemes and the lenders will be second tier organisations like the Israeli bank my neighbour got his mortgage from after a string of small but unpaid dates caught up with him via CCJs and made him a sub-optimal risk.
 
WTAF? Isn't that broadly how everything went to rats last time?


Similar to the way some commercial loans operate. Most respectable lenders want to see a bit of your money put in as a deposit though.

It is an easy, cheap way, of making money if you know you are onto a winner. We bought a lump of land here, the bank told us to take one of their commercial loans (interest only) as the period we wanted the loan for was only 12 months. We put down 20% knowing that the land would appreciate in value regardless. It has cost us around $5000 over 12 months and the land has doubled in value........a very good ROI. Many individuals and corporates take interest only loans on the basis that the value of the asset they are buying is going to increase over the period of the loan. Its how people like Trump and many other big names get financing. A bloke my lad follows on youtube is a Pakistani import to the US, he is fully Americanised, I think he has been here around 10 years and has gone from penniless import to a property empire of $250 million all based on interest only loans.

The problem arises when banks give these mortgages to people who cannot afford to repay them. And also when they don't require them to have any skin in the game so they just treat it like a rental and then bugger off when they don't feel like paying the mortgage after 6 months.
 
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People giving out that they can’t afford the 5% deposit ?

Since 2017 in Ireland, for first time buyers you legally have to have a min 10% deposit (and it can’t be borrowed). For non-first time borrowers it’s 20%.

There are also limits on how much you can borrow
 
WTAF? Isn't that broadly how everything went to rats last time?

Talking about this the other week with a mate,

I don't see a problem with them if tightly managed who gets them/qualifies and a limit/upper value on the value of the home your buying say £100k

Up here North Ayrshire is one of the most cheapest places in the UK to buy, And plenty of decent 1st time homes available for 60/90k which a mortage will be substantially cheaper than renting a similar sized property,
 

DK27

Clanker
100% loans…. What could got wrong?



Again

Would you believe me if I told you that in the early 80's you could get a 105% mortgage.. No deposit and a 5% bung to furnish the place.
 
Would you believe me if I told you that in the early 80's you could get a 105% mortgage.. No deposit and a 5% bung to furnish the place.

That was pretty normal back then - Extra could be added for double glazing / central heating etc.

For those in the know - You could get a ( Free ) grant to do the same thing ;) ;)
 

CharleyBourne

War Hero
Book Reviewer
That was pretty normal back then - Extra could be added for double glazing / central heating etc.

For those in the know - You could get a ( Free ) grant to do the same thing ;) ;)
I got my first mortgage at the end of the '90s by saving like fcuk, old banger motor, no foreign holidays, full time job with all the overtime going and 80 to 90 days a year with the TA (no support from my employer who still liked to claim that they supported Reserve Forces.)

Admittedly I had no commitments family wise and was lucky to be able to move back in with the folks for a time with the specific aim of saving money to fund a deposit - I acknowledge that not everybody has that advantage. I managed to scrape together about £20k and with the help of my then boss who upped my salary and overtime on the mortgage paperwork, managed to get a mortgage and bought my first house. My boss on learning how much deposit i had saved said "Why don't you buy a new car with it?"

Paying the mortgage was then a matter of eating cheaply, no holidays, more old bangers and watching every penny. Until I got married, and for some time afterwards, things were a bit tight but there was the satisfaction of seeing the loan slowly decrease. When 'er indoors and myself gradually got better pay over the years we overpaid the mortgage and avoided the temptation to remortgage and withdraw equity when house prices rose, except when we extended and in doing so added more value.

An old mate who is in his forties still doesn't have a house. He was in the regulars for over a decade, single and on far more money than I was, married a girl with a well over £50k income when he left, enjoyed foreign holidays, p!ssed it up etc. To be fair he acknowledges that he could have saved a bit more but says on the other hand, at least he had a good time and was not watching an old black and white telly that came with the house (try convincing TV Licencing that you really don't have a colour telly) and eating beans on toast.

Swings and roundabouts but I know where I'd rather be now. Similarly, "youngsters" I work with moan about not being able to afford a house but have car loans of £250 plus a month, holidays and weekends abroad at every opportunity, phone bills of £30 plus a month, eating out every weekend etc. Most of them are living at home at low rent or rent free but seem to have put owning a home as unobtainable and say they may as well have a good time while they can. Understandable I suppose.

I was very lucky to buy when prices were relatively low and then spiralled and have had unprecedented low interest rates, and know that young people today have an entirely different scenario to contend with, as well as wider factors like Covid and its legacy. However I feel that financial management or whatever you want to call it should be an integral part of the syllabus in schools.

Just finished my bowl of gruel so off now to stag on in the salt mines.
 
Wasn’t there a property crash and a lot of repossessions then to?

Steady rise all through the 80’s as I recall. It was the era of the Yuppies, BMWs, and Porkers, everything was going up.

I bought my first place on a 95% mortgage at the beginning of the 80’s and sold it in 89 for 3 times what I paid for it, bought another place, and held some money back to maintain my ability to eat whilst at university.

I think the crash came in the early 90’s. Come graduation time no one could get a job and ended up in shite jobs. Thats when the joke started: “What do you say to a new graduate”? “I’ll have fries with that”.
 

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