Mortgages often represent a percentage of the purchase price of the home. So, in this case, we’ll be looking at 100 percent mortgages for UK first-time buyers and 100 percent buy-to-let mortgage.
What is a 100 percent mortgage UK?
A 100 percent mortgage is a loan for the entire cost of the property you’re purchasing. Which means you don’t have to put down any money.
This may sound enticing to first-time purchasers who are in need of cash. However, 100% mortgages are risky and extremely rare in today’s market. There were just 41 deals available in January 2019 when we investigated.
100 percent mortgage UK comes in a variety of forms.
At the moment, only 100 percent of mortgage UK available on the market are guarantor mortgages. These take numerous forms, but they all rely on you having a family member who is ready and able to assist you.
We’ve covered the fundamentals of each form of 100 percent mortgage below,
#1. Mortgage for family deposits
A family deposit mortgage allows your family to pledge their cash or assets (or both) as collateral for your mortgage.
Savings as a safety net
In this case, a family member deposits cash
often between 10% and 20% of the value of your property. In a special savings account, the funds are held as security against the 100% mortgage.
At this time, your family will earn interest on their funds, however, the rate may not be as competitive as what they would obtain from a typical savings account.
Usually, the cash is retained until one of the following events occurs:
- the amount you still owe on your mortgage is less than a particular percentage of the property’s worth, usually 75 percent or 80 percent;
- So far as you’ve made your mortgage payments on schedule, a certain number of years have elapsed; or
- You have fully repaid the debt.
Property as a security measure
Instead of funds, a family member can put a charge on their own house as security against your mortgage, often between 20% and 25% of the worth of the property you’re buying.
Mortgages offset by family members
These work in the same way that family deposit mortgages do.
The primary distinction is that your family member’s funds will not earn interest.
The advantage is that when it comes to your own monthly mortgage payments, you’ll only make payments on the discrepancy between the entire value of the mortgage and the amount of savings maintained in the linked account. meaning you’ll spend less interest than if the savings weren’t there.
Mortgages with a family connection
The Post Office offers a ‘family connection mortgage,’ which is comparable to a 100% mortgage in that no deposit is required.
It essentially combines a 90% mortgage and a 10% loan, which is raised in the form of a mortgage against your relative’s home. To qualify, they must be mortgage-free.
Other lenders provide comparable programs under other names. You should speak with a whole-of-market mortgage broker to get a complete picture of all the available options.
The dangers of negative equity
The greatest risk of a 100 percent mortgage is that you will go into negative equity, which means you will owe more to your mortgage lender than the value of your property.
This could present issues if you were to transfer or remortgage your house. Unless you can find funding elsewhere to fill the difference, you may be trapped in your original mortgage contract, paying a high standard variable rate.
Negative equity becomes less of a problem as you pay down more of your mortgage and control more of the equity, but it is substantial in the first few years of a 100 percent mortgage.
Can I acquire a mortgage for the entire amount?
First-time buyers, home movers, and homeowners remortgaging can all qualify for 100% mortgages.
Nevertheless, because the number of agreements is limited, even if you have a family member who can act as a guarantor, there is no assurance you will be awarded a 100 percent mortgage.
Before choosing whether to lend to you, the mortgage lender will examine your financial situation to determine whether you can truly afford to make the monthly payments.
You are less likely to get approved for a 100% mortgage if you:
Firstly, have a low credit score: lenders will raise red flags if you have no deposit and a terrible credit history. You might want to look into bad credit mortgages.
You have debt: Even though your credit score is good, being committed to paying off debt each month may have an impact on your capacity to pay your mortgage
The Benefits and Drawbacks of 100% Mortgage
Even as we look at the benefits of a buy 100 percent mortgage in the UK, there are downsides too
Pros
- Allows you to purchase a home with no down payment.
- Lenders are producing new forms of 100% mortgages, which means more flexibility based on your position.
Cons
- It is dependent on the presence of a family member who can act as a guarantor.
- In rare cases, the guarantor’s home may be in jeopardy.
- In other cases, the guarantor may be unable to access their money for a period of time and may not earn interest on the sum.
- Obtaining approval for a 100 percent mortgage is challenging.
- The interest rate on a 100 percent mortgage is often greater than the interest rate on a mortgage with a lower loan-to-value ratio (LTV)
- Negative equity is a major danger.
What should you do if you are unable to Buy a 100 percent mortgage UK?
There are additional choices if you are unable to buy a 100 percent mortgage in the UK or a guarantor.
Mortgages with low down payments (90 or 95 percent mortgages)
Mortgages with low down payments may make saving for a deposit more feasible. However, in order to be considered, you must have a decent credit score.
You could also check into other deposit-free or low-deposit options. Schemes such as Help to Buy or shared ownership are examples of such initiatives. You’ll still need a deposit on these, but it’ll be little — often under 5%.
Deposits given as gifts
Even if you do not have a 100 percent mortgage, a friend or family member can assist you with your deposit. They may just give you the money you’d need as a down payment. This is known as a gifted deposit.
Some lenders may limit the amount of deposit that can be provided to a certain percentage. Your benefactor may also be required to declare that the money was given as a gift and does not need to be repaid.
Developer financing for new construction
These loans cover the costs of home construction over a short period of time. When the construction is finished, you repay the debt by remortgaging or selling your new house.
Are 100 mortgage UK available to first-time buyers?
Lenders view 100 percent mortgage UK as dangerous, especially for first-time buyers, because they own the entire amount of money invested in the property.
Furthermore, lenders also view first-time buyers as high risk, so they are unlikely to be accepted for a 100 percent mortgage in the UK.
A friend or family member must act as a guarantor for any first-time buyers. Even if you have a guarantor, you may not be eligible.
Because 100% mortgages typically have higher interest rates, it’s a good idea for first-time buyers to consider alternate choices and try to save for a deposit instead.
Is it possible to secure a mortgage with a temporary deposit?
Yes, there are a few mortgage lenders who will accept a temporary deposit. This is normally 10% of the property’s value, which must be provided by a guarantor, such as a parent or relative.
A temporary deposit places money in particular savings account for a set length of time. This is often the amount of time it should take the buyer to pay off the loan in the same amount that is in the savings account.
Once this is completed, the guarantor will be able to access the funds in the account.
Conclusion
A 100 percent mortgage is a loan for the entire cost of the property you’re purchasing, which means you don’t have to put down any money.
100 Mortgage UK FAQ’s
Can first-time buyers get 100 percent mortgages?
100% mortgages are far less common than they used to be, but you can still find them. That’s still true for first-time buyers, but it usually comes with the catch of it being a guarantor mortgage.
Is there a minimum amount for a mortgage UK?
Smaller category mortgages/remortgages in the £7,500 to £125,000 range begin at some of the lowest UK mortgage rates.
Do any lenders do 100% mortgages?
100% mortgages aren’t common, but there are some niche lenders out there still offering them. As you won’t need to provide a deposit, most 100% mortgages are guarantor mortgages. This means you’ll usually need a friend or family member to provide the lender with some security by acting as your guarantor
