The 100% mortgage is making a return to the market, after a long absence. For those unfamiliar with this type of mortgage, a 100% mortgage is an arrangement where the entire purchase price of a property can be financed through a loan from a lender. This type of mortgage can be highly advantageous for those looking to buy a home without having to make a substantial deposit, as it allows them to finance their purchase in full. However, it does come with some risks and potential drawbacks that need to be considered before taking out a 100% mortgage.
What is a 100% mortgage?
A 100% mortgage is a home loan where the amount borrowed is equal to the entire value of the property, meaning the buyer doesn’t need to put down any cash deposit. Recently, Skipton Building Society has brought back 100% mortgages through its Track Record mortgage product, making them available to First Time Buyers. However, it’s important to note that there will be a criteria that determines who can apply.
Before the 2008 financial crunch, 100% mortgages were easily accessible, but since then mortgage lenders have seen this type of mortgage as too risky. Nevertheless, it may still be possible for First Time Buyers to get a mortgage with no cash deposit to put down, but they’ll need some support, typically in the form of a guarantor.
Available to everyone?
The good news is that 100% mortgages are now available to first-time buyers in the UK. One option is the Track Record mortgage from Skipton Building Society which has a fixed rate of interest for 5 years. However, this type of mortgage does come with specific eligibility criteria which must be met. First-time buyers aged 21 or over who have less than a 5% deposit may be eligible for the Track Record mortgage, provided they have no missed payments on debts/credit commitments in the last 6 months and meet the household-to-household criteria. This includes not looking to buy a new build flat, and providing proof of having paid at least 12 months’ rent in a row in the last 18 months, as well as having experience of paying all household bills for at least 12 months in a row in the last 18 months. So, while 100% mortgages are more widely available, they are not available to everyone and it is important to check the eligibility criteria before applying.
The Pros and Cons of a 100% mortgage
If you’re considering a 100% mortgage, it’s important to weigh up the advantages and disadvantages before making any decisions.
1. No deposit required – With a 100% mortgage, you won’t need to put down any deposit, which can be great for first-time buyers who may struggle to save for a deposit.
2. Lower monthly repayments – Because you’re not putting down a deposit, your monthly repayments may be lower than they would be with a standard mortgage.
3. Potential higher interest rates – With a 100% mortgage, lenders take on more risk, and as a result, they often charge higher interest rates. This means that you may end up paying more over the course of your mortgage.
4. Limited options – Currently, there is only one lender offering 100% mortgages.
5. Negative equity – Because you haven’t put down a deposit, there’s a risk of negative equity if the value of your property falls. This could mean that you owe more than your property is worth.
Overall, 100% mortgages can be a good option for some buyers, but they’re not suitable for everyone. Before taking out a 100% mortgage, it’s important to speak to a mortgage advisor to determine if it’s the right option for you. You should also make sure that you can afford the monthly repayments, and that you understand the risks involved.
Are 100% mortgages right for you?
While 100% mortgages can be an attractive option for those struggling to save for a down payment, it’s important to carefully consider whether they are right for you.
Firstly, consider whether you have a stable income and job security. Without a sizeable deposit, you may end up with a larger mortgage payment each month which could become a burden if your income were to decrease unexpectedly.
Secondly, think about the long-term implications of a 100% mortgage. Without any equity in your property, you won’t be able to take advantage of any increases in the value of your home, and could end up in negative equity if the value were to decrease. Additionally, the higher mortgage payments may make it more difficult to save for renovations or unexpected repairs.
On the other hand, a 100% mortgage can be a good option if you’re confident that you can afford the payments and are comfortable with the risk. It can also be a good opportunity to get onto the property ladder sooner and start building equity.
Ultimately, it’s important to weigh the pros and cons of a 100% mortgage carefully and speak to a financial advisor if you’re unsure about whether it’s the right choice for you.
If a 100% mortgage is something that might be a fit for you then please do give us a call and we’ll put you in touch our local mortgage partners; Call 01536 737353