Everything a First Time Home Buyer Needs to Know About 100% Mortgage
If you have no deposit to buy a home in the UK, a 100% mortgage might be the best option to consider.
You may wonder why and what a 100% mortgage is?
A 100% mortgage is a loan for the entire cost of the property you’re buying.
The obvious benefit of a 100% mortgage is that you don’t need to save up any deposit before you buy the house or flat.
This may seem appealing, especially if you're a first-time buyer and struggling to save. At the same time, 100% mortgages are risky. They’re very rare in the current market.
Here you may have a look at the Positive side and the Negative side of taking 100% mortgages.
Positives and Negatives About 100% Mortgages
The Good Side
Enables you to buy a home without a deposit
Greater flexibility when different mortgages are developed depending on your situation
As long as you meet all your mortgage repayments, there’s no cost to your guarantor.
The Bad Side
Relies on a family member who acts as a guarantor
Guarantor’s own home may be at risk with some deals
The guarantor will be unable to access their savings, and may not earn interest on the balance with other deals
Difficult to get approved
Interest rates are typically higher than smaller mortgages
Negative equity is a significant risk
You still need to pay Stamp duty and any associated costs ( Legals/Moving/finance)
100% mortgages typically comes in various forms.
Types of 100% Mortgages
Traditional Guarantor Mortgages-
A family member (usually your parent) agrees to act as a guarantor, enabling you to borrow 100% of the property’s value.
Family Deposit Mortgages-
In this case your family member deposits cash between 10% and 20% of your property's value, in a special savings account. The money is held as security against the 100% mortgage.
Family Offset Mortgages-
It is similar to family deposit mortgages.
The main difference is that your family member won’t earn interest on their savings.
Family Link Mortgages-
It combines a 90% mortgage with a 10% loan, which is raised in the form of a mortgage against your relative's home. They will need to be mortgage-free to qualify.
All the above mortgages rely on a family member, willing and able to help you out. It is otherwise called as guarantor mortgages.
What is Guarantor Mortgage?
A guarantor mortgage is a mortgage where a parent or family member takes on some of the risk by offering their home or savings as security on the loan.
On the plus side, a person buying the property is more likely to get a mortgage, or to be able to borrow more at better rates.
On the downside, the guarantor will be liable for any missed mortgage payments.
The Risk of Negative Equity with 100% Mortgages
The biggest risk with a 100% mortgage is that you could fall into negative equity, which means owing more to your mortgage lender than your property is worth.
For example, if you used a 100% mortgage to buy a flat worth £300,000 but its value dropped to £270,000, you'd still owe your mortgage lender £300,000 minus anything you'd already paid off.
This could cause you problems if you needed to move home or re-mortgage. You could be trapped in your current mortgage deal unless you could find more money from somewhere else to cover the shortfall.
As you pay off more of your mortgage and own more of the equity, negative equity becomes less of a concern - but in the first few years of a 100% mortgage, the risk is significant.
Who qualifies for 100% Mortgages and who dont?
• First-time buyers and people who already own a home can be eligible for 100% mortgages.
• If you’re self-employed, you may get a 100% mortgage if you can show a consistent track record of earnings for the last 2-3 years.
• If you have a bad credit score your chances for getting a 100% mortgages is lower. However, it depends on the reasons why and how low your credit score is.
• If you are in debt, it can affect your chances of a 100% mortgage. It depends on what the amount of debt you have compared to your income.
• If you’re buying a shared ownership property, you won't be able to take a 100% mortgage.
Help to Buy
Another great alternative is Help to buy the government have jut extended this great initiative and with as little as 5% deposit the government loan you the rest of your deposit speak to a local agent today with LetsBid and they can walk you through all your options