If you’re struggling to raise a deposit to get yourself on the property ladder, this guide will tell you what you need to consider when it comes to 100% mortgages.
What is a 100% mortgage?
Mortgages are typically expressed as a percentage of the price of the home you’re buying. So, in this context, a 100% mortgage means that you’re borrowing the entire value of the property, without needing to put down a deposit.
How have 100% mortgages changed?
Before the banking crisis in 2008, 100% mortgages had been widely available from a number of lenders.
Following events in 2008, lenders tightened up lending criteria and the mortgage market regulator, the Financial Conduct Authority, eventually introduced new affordability rules designed to ensure that borrowers could manage to make the necessary repayments.
This forced lenders to pay more attention to each customer’s whole financial situation, rather than simply relying on how much the borrower earned.
Can I get a 100% mortgage?
With today’s tighter lending criteria, these products are no longer widely available, although niche products are offered by several lenders. To be offered a 100% mortgage you’re likely to need a family member to be a guarantor for the loan, meaning they become liable for the debt if you default on the repayments.
- Guarantor mortgages
With guarantor mortgages, a family member agrees to guarantee your mortgage repayments. 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 or even repossess the family member’s home to cover them. This is known as using a property as security.
- Family deposit mortgages
With family deposit mortgages your relative must deposit cash, usually between 10% and 20% of the property’s value, in a designated savings account (which will pay them interest in the normal way).
The guarantor won’t be able to withdraw any of their money until the end of a stated period – say, five years. This is known as using savings as a security.
If you meet the repayments and any other conditions for the stated period, the money is returned to your relative. If you default, however, this money is used to meet repayments.
What are the advantages of a 100% mortgage?
The main advantage of a 100% mortgage is that it lets you buy a home without having to save for a deposit.
What are the disadvantages of a 100% mortgage?
A 100% mortgage can leave a borrower at risk of slipping into ‘negative equity’ – a situation where their property is worth less than the amount they’ve borrowed against it. If you’ve borrowed 100% of the property’s value, even a modest fall in house prices would leave you in this position.
Taking on a 100% mortgage using a guarantor means you’re taking on conditions that affect your loved ones, as well as yourself. It certainly is a decision that requires serious consideration by all parties.
What are the benefits of putting down a deposit?
Even a relatively small 5% deposit will give you the opportunity to choose from more mortgage products; and the larger the deposit, the better the deal you’ll be able to access. It can be difficult to save for a deposit, but in doing so it can certainly widen your options and reduce your financial risks.
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