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The Return of 100% Mortgages. Is it a Good Thing?

100% mortgages were highly popular before the financial crisis over a decade ago. But once it hit, lending criteria tightened and the Financial Conduct Authority unveiled the affordability rules that providers still follow today to ensure borrowers won’t default on their loans. These regulations mean that lenders now look at a potential borrower’s whole financial situation, rather than just income alone.


This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.


How can you get a 100% mortgage?

Although most lenders stopped offering these types of mortgages, if you looked long and hard enough you could still find a lender willing to work with you, as long as you find a guarantor who would assume the debt should you not be able to make payments.

Another option is using your guarantor’s savings as security – this is where a family member deposits between 10%-20% of the property’s value in a designated savings account. Although interest will still be earned, the money won’t be accessible for a predetermined amount of time and if you meet the repayments, the money gets returned, but if you default, the money will be used to cover the mortgage payments.


Advantages

The most obvious benefit to these types of mortgages is that you don’t need a deposit to purchase a home. Saving for a deposit is often cited as the biggest hurdle for first-time buyers trying to get into the property market.

According to Mortgage Strategy, the average home first-time buyers are purchasing costs £208,741 and a deposit of around £33,127 is needed for most traditional mortgages.

Most people will save throughout their 20s in order to afford a home in their early 30s, but the average salary for this age group is just under £25,000.

Even if you were able to save £200/month (with 1.5% interest) it would take 13 years of solid saving to meet the £33k goal for a deposit. Saving any more money or reaching the goal faster is nearly impossible as you’d be putting about half of your entire salary away. With rent, bills, and life to worry about, this simply isn’t feasible. Suddenly, going without a deposit seems highly desirable.


Disadvantages

There’s a very real risk that if you are not able to save enough for a deposit, that there are other issues that could prevent you from making your mortgage payments each month. A 100% mortgage presents the possibility that a borrower could slip into “negative equity”, especially with the unpredictability of the housing market.

You would fall into negative equity if your property became worth less than what you’ve borrowed against it. If your mortgage is for the entire value of your property and the market shifts against your favour even a little bit, you are instantly in danger.

Of course, 100% mortgages are only an option for those that have a family member willing and financially able to help them out. If you’re lucky enough to have such a loved one, it isn’t a decision to be made lightly. You are not only risking ruining your own credit score and possibly losing your home, but your guarantor will be held responsible and will be affected as well.


Is a 100% mortgage right for you?

100% mortgages are certainly not the right path for everyone, but they are an option that could help first-time buyers get onto the property ladder.

To learn more about these kinds of alternative mortgages, get in touch with our mortgage expert. We can help you decide if one is right for you and help you find a provider that will meet your needs.


Need help to secure a low-cost mortgage?
Mortgages | Buy to Let | Property | Mortgage Planning |

Dental & Medical Financial Services have been helping doctors and dentists with finding low-cost mortgages for your home and investment properties for over 25 years. Call Chris to discuss your options.

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