A 100% mortgage is a loan that covers the entire value of the property you wish to purchase, which means you won’t need to pay any deposit upfront. Typically, 100% mortgages are guarantor mortgages, so you will need someone you trust, like a family member or a friend, to be liable for the loan if you fail to make the repayments. The repayment process is the same as a standard mortgage, with monthly payments over an agreed period, but the interest rates will likely be higher, given that you have not invested any equity in the property. 100% mortgages are not as popular as they once were, and lenders have become more cautious since the 2008 banking crisis, making it challenging to find lenders willing to offer 100% mortgages.
While some lenders still offer no deposit mortgages, they are no longer widely available. Instead, you might consider a guarantor mortgage, where a family member or a close relative agrees to guarantee your mortgage repayments or a family deposit mortgage, where your relative must deposit cash between 10% and 20% of the property’s value into a designated savings account.
Advantages of 100% mortgage
The main benefit of a 100% mortgage is that it allows you to buy a home without having to save for a deposit. However, they tend to be more expensive, and you run the risk of negative equity if your property value falls. Plus, taking on a 100% mortgage using a guarantor or family deposit can be a significant responsibility for everyone involved.
If you’re a first-time buyer, you may still find a 100% mortgage, but a lender may refuse your application if you’re considered a high risk. Putting down a deposit, even a small one, can broaden your options and reduce your financial risks.
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Which Lenders or Banks offer 100% Mortgage?
It’s important to note that 100% mortgages are not as readily available as they used to be, and lenders who offer them may have specific criteria that borrowers need to meet. Some of the lenders that may offer 100% mortgages include Bath Building Society (Buy for Uni student mortgages), and the Vernon Building Society. However, it’s always best to do thorough research and speak to a financial advisor before committing to any mortgage agreement.
Alternatives to 100% mortgages
Help to Buy an equity loan
The Help to Buy Equity Loan scheme is designed to help first-time buyers and home movers purchase a new-build property. To qualify, you must be a UK resident, not own any other property, and have a deposit of at least 5% of the purchase price. Once you have saved up the deposit, you will need to arrange a repayment mortgage for at least 25% of the purchase price. Then, you can apply for an equity loan from the government for up to 20% (or up to 40% if the property is in London) of the purchase price. The equity loan is interest-free for the first five years. After that, you will be charged interest on the loan, which starts at 1.75% in the sixth year and increases annually by the Retail Prices Index (RPI) plus 1%. You can repay the loan at any time, but you must repay it in full after 25 years or when you sell the property, whichever comes first.
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Shared Ownership
Shared Ownership is a scheme that allows people to buy a share of a property if they cannot afford the full deposit and mortgage payments on their own. Under the Shared Ownership scheme, you buy a percentage of the property, typically between 10% and 75% of its full market value, and pay rent to the landlord on the rest. The rules for Shared Ownership differ depending on the region of the UK you are in, with separate schemes for Northern Ireland, Scotland, and Wales. If you decide to purchase a home through the Shared Ownership scheme, you will be responsible for paying rent to the landlord for the share they own, as well as monthly ground rent and service charges. These charges are typically used to maintain communal areas of the property. When you purchase a share of the property, you can take out a mortgage to cover the cost of the share or pay for it with savings. You will also need to pay a deposit, which usually ranges between 5% and 10% of the share you are buying. It is possible to buy additional shares in the property in the future, which is known as “staircasing”. If you buy more shares, you will pay less rent, and the amount of rent you pay will be based on the landlord’s share. Shared Ownership homes can be new builds, existing homes purchased through a Shared Ownership resale scheme, or homes that meet your specific needs if you have a long-term disability. Providers of Shared Ownership homes include housing associations, local councils, and other organizations, and all Shared Ownership homes are leasehold properties.
Saving for a deposit
Saving for a deposit may take longer, but it can provide you with more options in the long run, including access to better mortgage deals and a wider range of properties to choose from. It also reduces the risk of negative equity, which is a significant concern when taking out a 100% mortgage.
Using a gifted deposit
If a family member or friend is willing to gift you the deposit for your home purchase, this could help you avoid the need for a 100% mortgage. However, this option requires careful consideration, as it can have implications for inheritance and tax.
Taking out a personal loan
While not typically recommended, it is possible to take out a personal loan to cover the deposit on a property. However, this option can be risky, as personal loans usually have higher interest rates than mortgages and may be unsecured, which means they are not backed by collateral.
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Should I consider a 100% LTV Mortgage?
The pros of a 100% mortgage include the ability to buy a home without a large upfront payment, which can be beneficial for those who are struggling to save for a deposit. However, the cons and risks associated with a 100% mortgage are significant. The interest rates on 100% mortgages are usually higher than those for standard mortgages, which can make the cost of borrowing more expensive in the long run. Additionally, if the value of the property falls, the borrower could end up in negative equity, owing more on the mortgage than the property is worth. This can make it difficult to sell the property or remortgage in the future. Finally, if the borrower defaults on the mortgage, the lender has no deposit to fall back on, which increases the risk of repossession. Overall, while a 100% mortgage can be a viable option for some borrowers, it is important to carefully consider the risks before committing to this type of loan.