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Should You Get a 100% Mortgage?

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Getting onto the property ladder is often not straightforward. Saving up a large deposit can be extremely difficult when competing with the daily living costs of food, children, vehicles, supplies, rent and more.

In some situations, your salary may be high, but you are still unable to save up a significant deposit. Is it possible to still get a mortgage in this position? 

With a 100% mortgage, yes, it is still possible to purchase a property.

If you are wondering what a 100% mortgage is, what its pros and cons are, and whether it’s suitable for you, keep reading. We’ve provided all the answers you need in the blog below.

What is a 100% Mortgage?

If you take out a 100% mortgage, it means that you are borrowing for the entire value of the house. In other words, if the property is valued at £300,000, you will borrow all that money to pay for it. This is only possible if your salary is high enough to do so, as the bank uses this to decide how much it will lend you.

Keep in mind that even if you take out a 100% mortgage, you will still need a few thousand pounds set aside to pay for the legal fees and moving costs associated with buying a property.

A 100% mortgage is a useful option for someone who wants to get onto the property ladder but cannot make a sufficient deposit. However, there are drawbacks attached that make the deal slightly less attractive – especially with the current high-interest rates in the UK.

Some 100% mortgages require a ‘guarantor’: someone who will pick up any payments you fail to meet. Sometimes, this can come in the form of collateral – i.e. if your guarantor owns a property, this may be used to supplement the deal. 

Becoming a guarantor is an extremely risky thing to do, and you should not rush or force anyone into doing it. Likewise, the bank is unlikely to give you favourable interest rates because they are also taking on a lot of risk. Therefore, you must meet all your repayments.

Can a first-time buyer get a 100% mortgage?

Yes, it is possible to get a 100% mortgage as a first-time buyer. However, it will probably be a family deposit or a guarantor mortgage. In this situation, you may still find that the lender rejects you if you are considered to be a ‘risk’. 

How common is a 100% Mortgage?

In the current market, with high-interest rates, 100% mortgages are reasonably rare. Skipton became one of the first lenders to offer it in 2023, and since then, only a couple more major banks have agreed to provide this product. 

In some circumstances, Barclays, Lloyds Bank and Halifax Building Society have been reported to offer a 100% mortgage. However, in almost all of these cases, a guarantor is required, and dozens of banks still do not provide 100% mortgages at all.

You should speak to a specific bank directly if you want to know more about whether they offer this product.

Advantages of a 100% Mortgage

Taking out a 100% mortgage enables you to purchase a house without saving up for a deposit. This may enable you to get onto the property ladder quicker or to complete the deal without sacrificing funds that you’d saved for another purpose – e.g. education for your children, a family holiday, or a new car.

Furthermore, with a 100% mortgage, you can build up equity in your home. This potentially means that once your introductory mortgage deal comes to an end, you could remortgage to a better deal.

Disadvantages of a 100% Mortgage

Getting a 100% mortgage is extremely expensive. Since you are paying interest on the entire property value, it can take a very long time before you build up any considerable equity in the house.

A 100% mortgage can also significantly strain your relationship with a loved one if you are forced to get a guarantor. If you are late on any payments, things can become extremely difficult and awkward, and you may find yourself negatively impacting the financial position of someone you care about.

You also risk falling into ‘negative equity’ when you take out a 100% mortgage. This can happen if property prices fall, and your house ends up being valued at less than the amount you have borrowed against it. This has been known to happen in parts of the country where housing prices are particularly volatile.

Furthermore, if your 100% mortgage is paid for through a family deposit mortgage, they won’t be able to access their savings for a set period of time. Once again, this can impact your relationships and put them in financial strain. 

Should I get a 100% mortgage?

From a financial point of view, saving up for a deposit is almost always advisable before you buy a house. The best interest rates are reserved for those who put up a large sum up-front – so the more money you can save to put towards the house, the better your deal will be.

If you feel uncomfortable putting a close friend or family member in a position where they become your ‘guarantor’, then you may want to steer clear of this option, too. 

Although 100% mortgages can be useful in some circumstances, it is generally better to find another short-term solution to save money for a deposit. Perhaps you could downsize, move back in with your parents, or find a way to increase your income (either by getting a second job or negotiating a pay rise).

You could also explore other avenues, such as looking at the ‘Help to Buy’ options that the UK government provides. 

Alternatives to a 100% mortgage

In addition to finding a short-term method of saving money so you can put down a deposit, there are other options you may wish to explore.

Instead of asking a loved one to be a ‘guarantor, ‘ you could opt for a gifted deposit. This is when they give the money to you up-front (if they can afford it) so you can use it for the deposit. Not only would this get you a better deal with regard to interest rates, but it would reduce your loved one’s personal liability since they wouldn’t have to put up something they own as collateral.

Shared ownership is a route worth considering, too. This is when you purchase a share of the property (usually somewhere between 25% and 75%) and pay rent to your local authority, housing association or housing developer on the remainder.

If you cannot afford to make a deposit on a house by yourself, you could also team up with someone who can and live together. If they put down the deposit on a two-bedroom flat (for example), you may negotiate that your monthly payments are higher than theirs, so the equity works out at 50/50. Alternatively, if you both have the same monthly payments, then perhaps you negotiate that their equity in the property is greater than yours – i.e. 57% versus 43% or something similar.

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