100 per cent mortgages are back — and so are the risks we tried to forget: Alex Goldstein

This comprised of a full bathroom suite that was in a chocolate brown colour with gold glitter running through it and gold taps. To tip me over the edge, this was all lovingly topped off by a purple shag pile carpet - seriously.

What gets me every time is why would somebody actually think this was a good idea and then put it into the public domain?

However I hate to tell you that purple shag pile carpet is back. But this time its long soft shaggy textures are being worn by a wolf, but this wolf has financial teeth that will potentially drive you to financial ruin. This time purple shag pile is back in the form of 100 per cent mortgages.

I was invited to a seminar by a well known legal firm, where the keynote speaker was the chairman of a new company who was portraying himself to be the saviour of the housing market, by enabling buyers to secure 100 per cent mortgages for new build homes. Before he got into the second paragraph of his well-choreographed speech, I stuck my hand up to interrupt proceedings.

I simply said that this all sounds great, however if buyers were so highly geared having taken on one of these 100 per cent mortgages, what happens if the market goes against them? A few stutters later, the speaker said they had this covered as they would only give these loans to people who could afford it.

My hand went up again. “Surely the fact you need to give them a 100 per cent mortgage means they can’t necessarily afford it? Did we not learn our lesson from 2008, that if people can’t afford these loans and are so exposed to any market fluctuations, that they will default?’” The response was, “don’t worry we have this covered with insurance”. At this point I quickly realised I was in the lion’s den and those sat all around me were the very people who would be benefitting from this new setup – solicitors, accountants and of course new build developers.

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Whilst this new finance company was depicting itself as the knight in shining armour to help people, I couldn’t help but feel that this was all highly precarious. Having so much individual borrowing leaves people highly exposed to the market and any changes in their lives.

If we really wish to help those onto the housing ladder, why are we not building the right types of properties in the right locations? How many young first time buyers do you know who want a three bedroom house on the fringes of a town? We are not building or converting smaller properties because there isn’t any incentive from the government and therefore no money to be made.

So if, like me, you think purple shag pile carpet in your bathroom should be confined to the history books, then perhaps a 100 per cent mortgages should join it too.

Alex Goldstein is an independent property consultant in Yorkshire and London. Visit alexgoldstein.co.uk or call 01423 788377.