For the first time since the recession the 100% mortgage has returned, although there not quite the same as they use to be before the financial crisis.
What is a 100% Mortgage?
A 100% mortgage allows buyers to purchase a home without the savings they’d usually need to get them started. A buyer could borrow 100% of the property purchase price and would not have to put any money down for a deposit.
So what’s the difference between a pre and post financial crisis 100% mortgage? In 2016 lenders are a lot more hesitant to offer 100% mortgages simply due to the high risk involved. In order to cater to this, buyers will now require a friend or family member to act as a guarantor.
Barclays is one of the few banks to offer this loan and their mortgage requires a family member or friend to deposit 10% in a savings account. This money will remain there for 3 years and act as security for the buyer if they fail to make the repayments or if there is a fall in house prices. Once the 3 years are up, this money can be withdrawn with interest.
But how do you know if this deal is for you?
The biggest positive on the pro list is really quite simple, a 100% mortgage allows you to buy a home without having to save for a deposit which will be great news for some first time buyers out there.
100% mortgages also have some use for existing homeowners that may have been stung by a fall in house prices, leaving them in negative equity, as it would allow them to remortgage or even move home, preventing them from being stuck with extremely high rates of interest.
Also, if you’re a parent looking to help your kids get into their first home, this could be a more suitable option to just gifting them the deposit as the money will be returned with interest 3 years later.
As you’d expect, 100% mortgages do come with a few drawbacks. These risks mainly fall on the guarantor as it will be their security savings that are affected if you can’t keep up with the repayments. Because of this it would be wise to find a family member that is willing to bare this potential burden.
100% mortgages are back but only in a very limited and specialised form. The list of banks offering this new deal isn’t very long, so your options on who to go with aren’t varied enough to really hunt for a great deal.
Finally, if the property market goes against you and house prices fall, there’s a chance that your mortgage will value more than your home, making the process of moving home in the future costly and much more difficult.
100% mortgages are clearly better suited for some more than others, but if you feel this type of loan could be beneficial to you then do some further investigating and find out if you’re eligible.