When it comes to buying a property, one of the biggest hurdles any buyer faces is the deposit. None more so than first-time buyers, who don’t have the equity in a current property to put against a new home. Over the last decade, first-time buyers have found themselves stuck in a ‘rental trap’- where rising rent prices make saving for a deposit almost impossible.
In an attempt to inject some new blood into the market, there has been talk of banks considering the revival of 100% mortgages. And a few weeks ago, Skipton Building Society was the first to launch its 100% mortgage product. Here’s everything you need to know about how it works.
What Is A 100% Mortgage?
Just like it says on the tin, 100% Mortgages are when a bank or building society offers you a mortgage on the full value of the property, with no deposit required. These used to be an offering by banks, but they were withdrawn after the housing market crash of 2008. It’s important to note here that a 100% mortgage doesn’t mean buyers shouldn’t save. The mortgage will only cover the cost of the property, and buyers will still be expected to pay fees for a solicitor, searches, surveyors, moving costs and possibly mortgage valuation fees.
There have been ways for buyers to get 100% mortgages over the last 15 years, but they largely rely on the buyer having a guarantor, or using family deposit mortgage products. If you couldn’t access those services or didn’t meet the lending criteria, then you would be expected to pay a deposit of at least 5 or 10%.
However, now buyers have another option. Skipton Building Society has officially launched a 100% mortgage product through their Track Record Mortgage product. It’s only available to first-time buyers and provides them with a five-year fixed-rate mortgage, providing they can:
- Provide a 12-month record of rental payments.
- Meet the affordability criteria
- Pass an incredibly rigorous credit check
The Advantages Of A 100% Mortgage
The re-introduction of 100% mortgages could be game-changing for the property market, as well as the huge number of younger people who are trapped in that rental cycle with no real escape route. A 100% mortgage means that people who have proven they can afford rental payments will now be able to get onto the property ladder without spending a lot of years saving. It also means they can take advantage of lower house prices and a buyer’s market.
Once you’re on the property ladder, the monthly payments you make will start to repay the debt. This allows you to build up some equity in the property, instead of spending money on rent. This mortgage option also allows you to keep your family out of the arrangement – unlike guarantor or family deposit mortgages. This makes mortgages more accessible for those with no family or family resources, and it will avoid potentially damaging relationships if something were to go wrong.
The Disadvantages Of 100% Mortgages
Of course, like any mortgage, there are risks associated with 100% mortgages. For starters, if you have little or no deposit, you’re likely to be paying significantly higher mortgage rates, which means that your monthly payments will be higher. With the Skipton mortgage, there is a cap that matches your current monthly rent, but this might not be true in the future, should the interest rate change or if other providers start to offer them.
The other downside is the lack of lender options. While more may offer them in the future, at the moment only a few lenders offer 100% mortgages, and only one will offer it without a guarantor. But the biggest risk is that property prices fall. If this happens, you’re at a much higher risk of going into negative equity. This is when your mortgage is worth more than the total value of your home. If you’re in negative equity then it will be incredibly difficult to remortgage to a different lender, to find competitive mortgage rates or to move.
We are happy to provide any information and advice, so if you’re curious all you need to do is get in touch.
GP Norgate Financial Solutions is a trading name of Easy Street Financial Services Limited which is authorised and regulated by the Financial Conduct Authority. Easy Street Financial Services Limited is a company registered in England and Wales with company number 6430453.
The registered office address is Basepoint, 377-399 London Road, Camberley, Surrey, GU15 3HL. There may be a fee for mortgage advice. The precise amount will depend upon your circumstances.
Your Home (or property) may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it.