Following the financial downturn of 2008, 100 percent mortgages became largely extinct. However, they’re making a comeback in today’s market. In this article, find out the benefits, and what could go awry.
In the past, 100 percent mortgages were prevalent, but they vanished after the economic crash of 2008. Today, Legacy Financial has introduced a fresh take on 100 percent mortgages in the UK. We’ll be diving into this topic further.
First-time buyers may wonder, “Can you get 100 percent mortgages?” The answer is yes, with the resurgence of this mortgage option through Legacy Financial. Mainly aimed at 100 percent mortgages for first-time buyers, let’s delve deeper into the pros and cons.
Understanding 100% Mortgages
100% mortgages allow you to borrow the entire property value you are interested in purchasing, eliminating the need for the usual 5% initial deposit. For instance, if the house is priced at £200,000, under a 100 percent mortgage, you would secure the entire £200,000 from your lender without any upfront deposit.
What’s New with 100% Mortgages?
Before the financial turmoil of 2008, offering 100% mortgages was standard practice for lenders. Some even provided loans exceeding the property value, up to 125% Loan-To-Value (LTV) ratios. However, this resulted in some borrowers being trapped in negative equity, unable to sell their homes.
With lending policies becoming stricter post-2008 crash, 100% of mortgages largely vanished, with guarantor mortgages being the exception.
Yet, in May 2023, Skipton Building Society introduced a 100% LTV mortgage, dubbed the ‘Track Record Mortgage’. It allows first-time buyers to secure a no-deposit mortgage, subject to meeting specific requirements.
How Do 100% Mortgages Operate?
The 100% mortgage by Skipton is engineered to aid renters in acquiring their first home without needing a deposit if they demonstrate a consistent rent payment record.
Skipton’s Track Record mortgage is offered at a five-year fixed rate of 5.49% for up to 35 years, and it’s available at 95%-100% LTV. You can secure it with up to a 5% deposit. However, there are stringent criteria to meet, which include:
- Evidence of rent payment for at least 12 consecutive months within the past 18 months.
- A record of paying all household bills (like utility and council tax) for at least 12 consecutive months within 18 months.
- Compliance with the ‘Household-to-household’ criteria. The individuals applying for the mortgage should be the same ones who have been renting and paying the bills for the last 12 months. If you’re applying alone, you must have managed the rent and all household bills independently for 12 consecutive months within 18 months.
- Each applicant should have had no payment defaults in the last six months.
- This mortgage type isn’t available for new build flats.
- Every applicant should be a first-time buyer aged 21 or above.
Opting for a 100% mortgage should not be a hurried decision. Yet, Skipton predicts significant demand for the Track Record Mortgage and cautions that it might sell out rapidly. Hence, if you’re contemplating this option, don’t hesitate to gather more information. Our commission-free mortgage broker partners at L&C can guide you.
At Legacy Financial, we also offer 100 percent mortgages in the UK, making it feasible for first-time buyers to step onto the property ladder. So, if you’re wondering, “Can you get 100 percent mortgages?” The answer is a resounding “Yes”.
How Much Can I Borrow with 100% Mortgages?
With Skipton’s 100% mortgage, borrowers can secure a loan of up to £600,000. The lender specifies that your monthly mortgage payment should be equal to or less than the average rental cost for the previous six months. For instance, if your average rent over the past six months was £800, your mortgage payment should not exceed £800. Additionally, the maximum loan-to-income ratio is set at 4.49.
You can use our calculators to gauge how much you can afford and the monthly cost of the mortgage.
What are the Benefits of a 100 Percent Mortgage?
Entering the property market as a first-time buyer has become increasingly challenging due to soaring rents that often consume potential savings for a deposit. Research by Skipton Building Society discovered that eight out of ten tenants feel ensnared in the rental cycle. However, those who have been diligently paying their rent for years can now leverage that ‘track record’ to secure a 100 percent mortgage in the UK and step onto the property ladder.
Here are a few more advantages of 100 percent mortgages:
- It allows you to start accumulating equity in your property to remortgage to a better deal once the five-year fixed deal concludes.
- You have the flexibility to purchase any property type with this kind of mortgage, except for new build flats.
- Your mortgage payments will be the same or cheaper than renting, though you must shoulder other expenses like property maintenance.
What are the Drawbacks of 100 Percent Mortgages?
However, 100 percent mortgages also carry some potential pitfalls. If you’re contemplating, ‘Can I buy a house without a deposit in the UK?’ It’s essential to consider the pros and cons of 100 percent mortgages.
Risk of Negative Equity
The most significant risk with 100 percent mortgages is the likelihood of falling into negative equity. This happens when the market value of your property is less than the mortgage you have secured on it. For example, if you bought a property for £200,000 with a 100 percent mortgage and its value falls to £190,000, you’d still owe your lender £200,000, minus the amount of capital you’ve already paid off.
Being in negative equity can create difficulties if you want to remortgage; you could find yourself stuck on your lender’s more expensive standard variable rate until you’ve built enough equity in your home to remortgage onto a better deal.
Nevertheless, the longer you’ve been paying your mortgage, the more equity you will have built up (assuming your house’s value doesn’t plummet drastically), so your risk of negative equity will be lower. To further reduce the risk of negative equity, it’s advisable to make overpayments on your mortgage if possible.
Since 100 percent mortgages present a higher risk to the lender, the rates are typically higher than the best first-time buyer mortgage rates, even on 95 percent LTV mortgages. Moreover, with only a single 100 percent mortgage product, you can’t exactly shop around for the best rate.
The most straightforward method to apply for a 100 percent mortgage in the UK is by consulting a fee-free mortgage broker. They can guide you on whether you meet the lender’s criteria for 100 percent mortgages and if more suitable products are available.
Are you saving for a Deposit?
It’s a daunting task to save for a house deposit, but Legacy Financial can help gather all the help you may need.
- Lifetime ISA: This savings account, available to those aged 18-39, is designed to encourage saving for a first home or retirement. You can contribute up to £4,000 each tax year, and the government will grant a 25 percent bonus on your deposits, up to £1,000 annually.
- Bank of Mum and Dad: If your parents or grandparents can offer financial aid, amassing a deposit becomes much more accessible. They might be able to help with a gifted deposit.
- Budget and reduce expenses: When saving for a deposit, establish a budget and save whatever you can each month. Sound financial management will also show lenders you are responsible for your finances.
What are the Benefits of Providing a Deposit?
If you save up for a deposit of 5 percent or more, you’ll have a more comprehensive selection of lenders and access to cheaper rates. But even if this isn’t achievable, it’s still worth saving as much as possible for a deposit when obtaining a 100 percent mortgage. By putting in even just 3 percent, you can start building some home equity.
Are 100% Mortgages Accessible for Buy-to-Let?
Regrettably, 100% Buy-to-Let mortgages are not available. You will always need to provide a deposit, and the deposit requirements for Buy-to-Let properties are generally higher than for a traditional mortgage. A deposit of at least 20% is typically required. You can find more information in our guide “Demystifying Buy-to-Let Mortgages”.
Is It Possible to Get a Mortgage with an LTV Over 100%?
Although it may be unusual, obtaining an LTV over 100% mortgage might be possible if you find yourself in negative equity. A few specialist lenders offer this type of mortgage. However, the rates can be quite high, and it’s crucial to seek expert mortgage advice in such circumstances.
What Alternatives to a 100% Mortgage Exist in the UK?
What options exist other than 100% mortgages in the UK, if saving a 5% deposit proves challenging?
- Shared Ownership: With this model, you purchase a portion of a property (10%-75%) and rent the remaining part. This reduces the size of the mortgage and, consequently, the deposit required. Over time, you can increase your stake in the property. Housing associations or private developers often provide such schemes. Learn more about the pros and cons of shared ownership.
- First Homes: The government’s First Homes scheme offers newly constructed homes to local first-time buyers, including key workers, at a discount of at least 30% compared to the market value of similar properties. This reduces the need for a large mortgage and deposit. However, the eligibility criteria vary, and the number of First Homes being built is very limited.
- Rent to Buy: Rent to Buy allows you to rent a home at roughly 20% below the market rate, providing an opportunity to save for a deposit for your first home.
Can You Obtain 100% Mortgages with Bad Credit?
Obtaining a mortgage with bad credit always hinges on your circumstances, including the nature of your credit issues and their recency. Therefore, you should consult with a fee-free mortgage broker about your options.
How Can I Purchase a House with No Money in the UK?
While you might be able to secure a 100 percent LTV mortgage to purchase a house, you will still need funds for other associated costs such as conveyancing fees, stamp duty (if applicable.)
Are There Any No Deposit Mortgage Government Schemes?
Unfortunately, no government schemes currently offer no deposit mortgages. While you might have heard of the ‘mortgage guarantee scheme’, it’s not something you directly apply for. Its objective is to encourage lenders to offer 95% LTV deals. However, it’s important to note that many lenders offer 95% deals independently of this scheme.