Posts Tagged ‘100% mortgages’

Problems with 100% mortgages

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If you are looking for a mortgage you might be tempted to go for a 100% one because it means that you do not have to save up for a deposit. However, if you can avoid doing this and put down some money, you may find that it is much better.

A lender will take a big risk by lending 100% of the mortgage required for a house purchase. They will want to make sure that they secure themselves in case you cannot repay the mortgage or go in to negative equity. To do this they will charge a high interest rate. This means that you could end up paying a lot more money, than you might if you put down a deposit.

They will also want to ensure that you have a good credit rating because that will give them confidence to lend you the money. This means that it might not be something that everyone will be able to take on. Unfortunately, if you have never had any credit, which could be the case for a first time buyer, then you may not be able to get this sort of mortgage. Only by applying for one, will you find out.

There are just a limited amount of 100% mortgages out there. There were quite popular a few years ago, but they have become very limited in numbers because of the economic troubles we are having. This means that there is not much competition between lenders and not many to compare. This can lead to high pricing, perhaps in the form of high interest rates or high costs.

This all means that you will end up paying a lot more money for your house over the mortgage length if you get a 100% mortgage. It can help you out if you are desperate to own your own house and cannot save up for a deposit but it can end up being really expensive. It is certainly a decision that you should not make lightly. It is worth weighing up all of the pros and cons before deciding whether to go ahead with this sort of mortgage.

The advantages of 100% mortgages

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A 100% mortgage means that you will not have to pay a deposit. The lender will give you the full value that you need to buy the property.

This type of mortgage is great for anyone who cannot afford to save up for a deposit as they will be able to get on the property market more easily. It can be difficult, especially in this current economic climate, to put away some money each month. Even if you do have savings, you will need money to pay for the move, to pay the solicitor, the removals company and things like that and so finding a significant chunk for the deposit can be very difficult.

100% mortgages are not that common, most companies do ask for a deposit, but there are a selection on offer, which means that there is the opportunity to compare them and find out which one will be the best for you.

The mortgages were set up to help first time buyers as anyone who has an existing mortgage and is moving house, is likely to have some collateral in the house that will be used instead of a deposit. The 100% mortgages do sometimes often ask for a guarantor, which means that the borrower will nominate someone who will be able to cover repayments if the borrower cannot. This is often a parent or grandparent. They do this because the lending risk is higher as the bank has no down payment on the loan or any collateral in the property.

With house prices being so expensive, even though they are dropping a bit, it is still very difficult to save up enough money for a deposit. Years ago deposit amounts were much smaller but these days trying to find 10% of the value of a property will mean putting away tens of thousands of pounds, which is a sum of money that can be very difficult for anyone to save up. With many people having not had pay rises for a while and prices going up all the time, it can seem impossible to save very much and therefore having the option of not paying a deposit can be a great opportunity.

What is 100% Mortgage?

A 100% mortgage is a type of mortgage which covers the total value of the property the mortgage is being used to purchase. For example you do not need to put any deposit down  – the mortgage lender provides a mortgage to cover the full property value.

Simply put, a 100 percent mortgage means that you have borrowed 100% of the value of the property you are buying. It is also called zero down mortgage, because you don’t have to put down any deposit. It is especially popular within the United Kingdom.

This type of mortgage is especially common with first-time buyers. High-percentage mortgages, like this one, are not as likely to be subjected to extra lending charges as they once were. At the moment there are few brokers that accept 100% mortgage applications.

Keep in mind that just like you need to shop around for the right property, you need to find the right mortgage for you. Right now 100% mortgages are available through several lendors, for example Aldermore.

Their terms are – young buyers can borrow up to 100 per cent of the property’s value, with a maximum loan of £250,000, without a deposit. But their parents have to guarantee up to 25 per cent of the property’s value by putting up the family home as collateral.

Step-parents, grandparents and legal guardians can also act as guarantors if they are ready to take the risk. First time buyers have to be aged over 25, earning more than £10,000 and with a clean credit history.