100% LTV Mortgage
In this guide, we discuss both the positives as well as the negatives of getting a 100% mortgage. We will explore the advantages of the no-deposit mortgage as well as the risks and available alternatives. Our mortgage advisors also explain how a mortgage broker can help you secure a 100% mortgage.
What is a 100% LTV Mortgage?
To understand how a 100% mortgage works first let’s explain the average loan to value of a mortgage. With most mortgages, generally, you are required to pay an upfront deposit which is usually a minimum of 5% of the property value. However, a 100% ltv mortgage allows you to borrow the entire value of the property without the need for any deposit.
Let’s put this in perspective with a real-life example; if the home you’re buying costs £250,000, you would put no deposit down and receive a mortgage for the full amount of £250,000. This means you’ll have no equity in the property and won’t need to provide a cash deposit.
Are there any current 100% mortgage products?
Since the 2008 financial crisis, 100% mortgages have become less common, with lenders now more cautious about high loan-to-value (LTV) ratios. However, there are still ways to obtain a 100% mortgage through guarantor arrangements or family deposit mortgages which we talk about below.
Skipton Building Society plans to introduce a new style of deposit-free mortgage specifically for first-time buyers who have a 12-month track record of renting. The much anticipated Skipton Next Generation Mortgage is due to be launched in early May 2023.
This could be the start of lenders bringing back no deposit mortgages for the first time since 2008.
Below we look at the alternative to the 100% mortgage which are guarantor mortgages.
A guarantor mortgage involves a close family member, such as a parent or grandparent, acting as a guarantor for your loan. They’ll use their savings or their own property as security against your mortgage.
Which lenders offer guarantor mortgages?
Not all mortgage providers offer guarantor mortgages, but some do. These include:
Aldermore – Aldermore Family Guarantee Mortgage
Barclays – Barclays Springboard Family Mortgage
Cumberland Building Society – Cumberland Family Assist Mortgage
Generation Home – Generation Home Family Boost Mortgage
Ipswich Building Society – Ipswich Family Guarantor Mortgage
Kent Reliance – Kent Reliance Family Deposit Mortgage
Leeds Building Society – Leeds Family Helper Mortgage
Cambridge Building Society – Cambridge Family Support Mortgage
Tipton Building Society – Tipton Family Assisted Mortgage
Newbury Building Society – Newbury Family Offset Mortgage
Loughborough Building Society – Loughborough Family Deposit Mortgage
Tipton & Coseley Building Society – Tipton Family Assist Mortgage
Halifax – Halifax Family Boost Mortgage
Family Deposit Mortgages
Family deposit mortgages work by requiring a family member to pay a deposit of a certain amount. The deposit expected is typically between 10% to 20% of the property’s value and is to be paid into a savings account held by the mortgage lender.
What is a family deposit mortgage?
A family deposit mortgage works by using the savings of a family member to serve as security or guarantor for the mortgage lender. This protects lenders against any possible drops in property value or if the borrower defaults on the payments. Typically, the money in the savings account can not be accessed for a set period of time (for example, five years). This allows the homebuyer a good chunk of time to pay off a portion of the mortgage and build up equity.
Which mortgage lenders offer family deposit mortgages?
A few lenders offer family deposit mortgages, including:
Family Building Society
Tipton Building Society
Each lender has its own terms and conditions for their family deposit mortgage deals, so it’s wise to consult with a fee-free mortgage broker to find the best option for your situation.
Advantages of a 100% Mortgage
Faster homeownership: A 100% mortgage allows you to purchase your first home without waiting to save for a deposit. In a rising housing market, this could result in buying at a lower price.
Equity-building: As you make mortgage payments, you’ll repay the mortgage loan and build equity in your property, instead of spending money on rent.
Family exclusion: Unlike guarantor mortgages, your family isn’t involved in the mortgage process, reducing potential relationship strain if financial difficulties arise.
Risks of a 100% Mortgage
Higher mortgage rates: With little or no deposit, even with a guarantor, you’ll likely face higher mortgage rates, resulting in a more expensive loan.
Limited lender options: Fewer lenders offer 100% mortgages, which may lead to less competitive rates.
Negative equity risk: If property prices drop, your mortgage could exceed your home’s value (negative equity), making remortgaging or finding competitive rates difficult.
Alternatives to a 100% Mortgage
If a 100% mortgage isn’t the right fit for you, consider these alternatives for getting on the property ladder with a small or no deposit:
Shared ownership schemes allow you to buy a portion of a property, usually between 25% and 75%. You’ll pay mortgage repayments on your owned equity stake and rent on the remaining property share. Over time, you can increase your ownership stake in the property.
If a family member can provide a cash deposit as a gift, this is generally simpler than using a guarantor or family deposit scheme. Once gifted, the family member won’t need to provide additional security or be liable for any debt, allowing the first-time buyer to obtain the mortgage independently.
Saving for a small deposit, even just 5%, allows you to access mortgage deals without needing a guarantor. Keep in mind, the more you save for a deposit, the lower the interest rates will be. With a 95% LTV mortgage, you can also access first-time buyer schemes such as Deposit Unlock (for new-build homes) and the Mortgage Guarantee Scheme, a government-backed mortgage deal.
100% LTV Mortgage Affordability
When considering a 100% mortgage, it’s really important you can afford the monthly repayments. Mortgage lenders will evaluate your affordability based on factors such as your income, regular expenses, and any outstanding debts. Since 100% mortgages generally have higher interest rates and may come with additional fees, it’s essential to ensure that you can comfortably manage the monthly repayments without putting too much strain on your finances. Before applying for a 100% mortgage, it’s a good idea to create a budget, calculate your expenses, and determine how much you can realistically allocate towards mortgage repayments each month.
Avoiding Negative Equity
One of the significant risks associated with a 100% mortgage is the possibility of entering negative equity. Negative equity occurs when the outstanding balance on your mortgage exceeds the current value of your property. This can happen if property prices fall, leaving you with a mortgage that is worth more than the total value of your home.
To avoid negative equity, consider the following:
Opt for a property with growth potential: Search for a property in an up-and-coming area or one that can be enhanced or expanded to boost its value over time.
Make extra payments when you can: If your mortgage permits overpayments without penalties, aim to make extra payments when possible. This helps you build equity more quickly and lowers the risk of negative equity.
Keep an eye on the housing market: Stay informed about house prices in your area so you’re conscious of any shifts in prices or trends that might impact your property’s value.
Think about a shorter mortgage term: A shorter mortgage term may lead to higher monthly payments, but it can aid in building equity more rapidly. You’ll pay interest on a mortgage; however, the shorter the term, the less interest you’ll owe.
By being mindful of these factors and taking measures to prevent negative equity, you can better safeguard your investment and relish the perks of homeownership with a 100% mortgage.
5 Ways A Mortgage Broker Can Help You Achieve a 100% Mortgage
1) Expert advice
Mortgage brokers have extensive knowledge of the mortgage market which changes on a daily basis and can provide tailored advice based on your financial situation and goals.
2) Access to exclusive deals
Some mortgage deals are only available through brokers, so working with one could help you secure a more competitive rate.
3) Simplified application process
A mortgage broker can help you navigate the mortgage application process, ensuring you have all the documents that will be needed, increasing your chances of getting a mortgage.
Mortgage brokers can save you time by comparing multiple mortgage lenders and deals, helping you find the best 100% mortgage for your needs.
5) Ongoing support
A good mortgage broker will offer support throughout the entire mortgage process, from application to completion, and even beyond if you need assistance in the future.
100% mortgages can be a fantastic choice for first-time buyers who find it tough to save for a deposit. Even though they carry some risks, collaborating with a broker can guide you through the process and help you land the best deal. By looking into guarantor mortgages, family deposit mortgages, and other alternatives, you can make a well-informed decision about the most suitable route to homeownership tailored to your specific circumstances.
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Frequently Asked Questions
Indeed, you can get a 100% Loan-to-Value (LTV) mortgage, but options are somewhat limited. Generally, you’ll need a guarantor, like a parent or grandparent, who can provide security for your mortgage. There are also family offset mortgages where a family member contributes a certain percentage of the property’s value or their savings as security. Although 100% LTV mortgages are less common and carry more risk, they enable you to buy a property without a cash deposit, making it more accessible for first-time buyers to join the housing market.
While a 100% mortgage might seem appealing to first-time buyers lacking a deposit, it’s crucial to ponder the potential risks and alternatives. High LTV mortgages mean you’ll have to pay higher interest rates, making them pricier in the long run. It’s also vital to consider the risk of negative equity in case property prices decline. First-time buyers can look into other options like shared ownership schemes, gifted deposits, or saving for a more substantial deposit to secure lower mortgage rates and better terms. Talking to a broker can help you figure out the most suitable option based on your unique situation.
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