A simples guide

Can I get a 100% mortgage?

Back in the days before the financial crisis in 2008, 100% mortgages were relatively common. When the crash happened, banks tightened their purse strings. New rules from the regulator, were also brought in, and 100% mortgages became a distant memory.

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What is a 100% mortgage?

A 100% mortgage simply means that you are borrowing the whole value of your property without needing to put down a deposit. For first time buyers this meant an easier easy way of getting on the property ladder.

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house and key

Will they ever come back?

Well they have started to reappear again but in a new form with “strings!”

Barclays Bank research has found that 35% of first time buyers are forced to ask their parents to help. Some 20% of these take the money as a gift, while others use the two types of 100% mortgage that are still offered by a few lenders.

These types of mortgage come with some pretty significant strings!

 

Guarantor mortgages

With this type of mortgage you can indeed borrow 100% of the property value, but a family member must agree to act as a guarantor on your mortgage. This means that if you can't meet your repayments and your home gets repossessed, your mortgage lender will expect your guarantor to cover the cost of any losses.

If they’re unable to do this, their own house could be at risk of being repossessed too.

Often the guarantor liability is capped at 25-35% of the value of your mortgage, so this is the most they would be responsible for repaying if you were unable to meet your repayments.

Family deposit mortgages

With this type of arrangement, a family member must deposit cash, usually of between 10% and 20% of the property's value in a special savings account. This money is held for a fixed period of time as security against your mortgage. Some products do pay a small amount of interest while it sits there (but not very much!) and, when you’ve met the repayments and any other conditions for a period of time, the money is returned.

Just this month (June 2016), Barclays issued a new offer of this type. It has been hailed by mortgage brokers as “the first true 100% mortgage since the financial crisis”. It has been offered at a competitive fixed rate of 2.99%, with a maximum loan value of £500,000. Can we balance this with the fact that you need to have some savings

Other offerings of this type from Aldermore and Bath Building Society exist, but have rates of almost 5.5%.do you need a deposit for these as well?

The downside of this type of mortgage arrangement is that if you fail to meet your repayment obligations, the lender will use the family deposit instead.

Borrowing 100% of your loan value is always going to be a riskier business. Not only are you likely to be stretching yourself financially, but you are also more at risk from what is known as ‘negative equity’.

This is where your property becomes worth less than the value of the loan outstanding on it. This could happen for example if property prices were to fall. In this situation, even if you sold the house, it still wouldn’t repay the mortgage.

If you’ve a lower risk tolerance, or simply don’t have the luxury of family members able to assist you, you’ll need to save up a deposit in the traditional way. In some cases this can be as little as 5% of the property value with some lenders. However, the larger your deposit, the more deals you’re likely to find available at more competitive rates.

There’s no doubt that as property prices have gone up, getting on the housing ladder is more difficult than ever. 100% mortgages could be an option for some people to give them a foot up. Just remember to take account of all the obligations and make sure that everyone fully understands all the risks.

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