Metro Bank Offers 100% Mortgage to First-Time Buyers Requiring Parental Guarantors

Metro Bank has introduced a mortgage product that enables first-time buyers to purchase a home with a 100% loan-to-value ratio, eliminating the need for a traditional deposit. This offering, termed a 'joint borrower sole proprietor' mortgage, requires an immediate family member, typically a parent, to be added to the mortgage application.

Under this scheme, the family member acts as a joint borrower, meaning their income is factored into the affordability assessment, potentially allowing the buyer to borrow more. However, this arrangement also means the family member becomes jointly liable for the mortgage payments. If the primary buyer defaults on payments, the guarantor parent will be responsible for fulfilling the obligations. This could negatively impact the parent's credit file and their future borrowing capacity or retirement plans.

The mortgage features a five-year fixed rate of 6.99% for loans covering more than 95% of the property's value, with a minimum repayment term of 35 years. Buyers have the option to contribute a small deposit of less than 5%, which would reduce the overall repayment amount and potentially secure a lower interest rate.

This product is distinct from standard mortgages where a 5% deposit might qualify for lower rates. For example, a 5% deposit could allow access to a five-year fixed rate of 4.98% with lenders like Skipton Building Society. On a £200,000 mortgage with a 35-year term, the Metro Bank 100% mortgage would result in monthly payments of approximately £1,277, whereas a mortgage with a 5% deposit could be around £1,007 per month, representing a saving of £270 monthly.

Despite the higher interest rate, the Metro Bank product allows for a maximum mortgage size of £675,000 and can include up to four individuals on the mortgage, with all incomes considered for affordability. The product excludes properties above commercial premises or new builds.

Similar family-assisted mortgage options exist from other lenders. Barclays' Family Springboard Mortgage requires a benefactor to provide 10% of the property price as security in a savings account. Family Building Society's Family Mortgage requires family members to provide security through savings or a charge on their own home, with the total security plus any buyer deposit equaling 20% of the property value. Other lenders such as Skipton, Newcastle Building Society, and Cambridge Building Society also offer 'joint borrower sole proprietor' mortgages, though not always at 100% loan-to-value.

Mortgage brokers have cautioned that parents acting as joint borrowers are undertaking a significant financial commitment. They advise that families should seek independent financial advice to fully understand the risks, including potential impacts on credit files, future borrowing, and retirement plans, especially in scenarios where interest rates rise or the buyer's income falls.