100% Mortgage – No Deposit Mortgage.
A 100% mortgage can be useful when for prospective property buyers wishing to get on the property ladder but who do not have a deposit.
In this article we will look at the 100% mortgage and explore your options for borrowing up to 100% loan to value, meaning no deposit. The available schemes vary across the mortgage market and after reading this guide we hope you will be much wiser as to what your 100% mortgage options are and the pros and cons of taking out a 100% mortgage.
A Brief History of 100% Mortgage options.
Back in the early 2000s, 100% mortgages were very popular among first-time buyers. These mortgages allowed buyers to buy a house without putting down any deposit, which meant they could borrow the entire cost of the property. In fact, some lenders such as Northern Rock offered 125% mortgages. 95% secured and the remainder unsecured (like a personal loan).
When the global financial crisis hit in 2008, it caused a lot of chaos in the housing market. Many lenders had to repossess and often the stock value of the property was lower than the total debt.
Naturally lenders and regulators became more cautious, new rules were brought in by the FCA and 100% mortgages became harder if not impossible to come by. However, there are now lenders that are able to offer high loan-to-value mortgages from 95% to 100% loan-to-value. The risks are mitigated in various ways which we will explore.
100% Mortgage.
How 100% mortgages work.
There are various 100% mortgage options in the market but all of them allow a first time buyer or home mover to purchase a property with little or no deposit.
Mortgage lending is all based on risk. The higher the loan to value or smaller ones deposit the higher the risk to the lender. As a result, 100% mortgages are classed as high risk and therefore lenders will be looking for eligible applicants to meet certain criteria including;
- A good to excellent credit score – There will be very little to no appetite from lenders for clients who have missed payments on their credit commitments.
- Experience of paying for accommodation – Some lenders stipulate that you must be a renter and able to demonstrate a track record of paying rent in the UK.
- Full time employment – Lenders will require that you are in a full time employed position or have at least 2 years accounts/tax calculations if self-employed.
- Full rights to reside – Lenders will only lend to clients with full rights to reside in the UK also known as permanent residence.
For clients that meet the lenders criteria Fox Davidson will complete a fact find with you and establish your affordability. Following a credit check we will receive confirmation from the lender that they will lend to you.
The process then involves a property valuation and all being well the lender will issue a formal mortgage offer in the normal way.
100% mortgage eligibility
100% Mortgages pros and cons
Taking out a 100% mortgage has its advantages and also its disadvantages and it is important to consider all factors before deciding to proceed with a 100% mortgage application.
Pros.
- Can purchase a property sooner as you do not have to save a deposit
- 100% mortgages allow more people to own their own property which is good the housing market
- Benefit from property price increases as soon as you have purchased a property
- 100% mortgages allow clients to pay down the mortgage through extra overpayments, thus reducing your loan to value post completion of the purchase.
Cons.
- 100% mortgages attract a higher rate of interest compared to mortgages with a deposit.
- Risk of negative equity in the case of declining property prices
- Lending is all about risk and 100% mortgages are reserved for those with the best credit profile.
- Limited availability – Due to lenders nervousness around lending at a high loan to value there are still limited options within the market.
Alternatives to the 100% mortgage.
There are some other options worth exploring which include right to buy mortgages, shared ownership, for renters some mortgage lenders accept gifted deposit from your landlord via a reduced purchase price or in the case of new build property a gifted deposit from the property developer.
Our Top 3 100% mortgages
1. 100% mortgage – 99% of the way there.
The first option in our list is a 99% loan to value mortgage. You need at least a 1% deposit or £5,000
Who can apply?
∙ One or more applicants but at least one of the applicants MUST be a first-time buyer.
∙ Minimum of £5,000 deposit
∙ Must achieve a high credit score when credit scored by the lender
Criteria:
∙ Min loan £95,001
∙ Max loan £495,000
∙ Houses only, no flats and no new build houses
∙ Max age at end of term 70
∙ Max term 40 years
∙ Capital and interest repayments only
2. 100% mortgage for ‘renters’.
The second option is a product that rewards people who have rented a property for a period of time and now wish to get on the property ladder. This product can go up to 100% loan to value.
Who Can apply?
Anyone who has not owned a property in the last 3 years and who has been renting a property for at least 12 months within the last 18 months.
Criteria:
- Up to 100% LTV mortgage for current renters, who haven’t owned a property in the last 3 years and can demonstrate a track record of affordability of ALL monthly rent for a minimum of 12 months in the last 18-month period.
- The monthly mortgage payment of the proposed mortgage must be equal or lower than the average of the last 6 months rental cost – e.g. if the average rent over the last 6 months is £1200, the mortgage payment must be £1200 or lower.
- Maximum term of 35 years
- Max loan £600,000
- Maximum income multiple of 4.49 or 4.75 if income >£100k
- No new build flats
3. A little help from your family
Option 3 in our list is a product that requires a little help from your family. A family member is required to deposit 10% of the property value into a savings account with the lender. This is locked in for 5 years earning interest for the depositor.
The lender will then lend 100% loan to value to the mortgage applicant.
Who can apply?
Anyone can apply even if they are not a first-time buyer but you must currently not own any property.
Criteria:
∙ 4 x income or 4.49 x income if > £50,000
∙ Max loan £500,000
∙ Max term 35 years
FAQ’s – No deposit mortgages.
Should I get a 100% mortgage ?
A 100% mortgage is not for everyone and as a responsible FCA authorised mortgage broker we will assess your affordability and eligibility across the UK mortgage market for a 100% mortgage and advise you of your lending options.
You should consider all of the pros and cons of taking out a 100% mortgage before entering into an agreement to borrow.
Can I make over payments on a 100% mortgage ?
Yes, mortgage lenders typically allow you to make overpayments without penalty of up to 10% of the mortgage balance each year. This is a great way to bring down the loan to value of your mortgage over time.
Can I get a 100% mortgage ?
Mortgage lenders will lend to clients who have permanent rights to reside in the UK, a good credit history and a steady income. To find out if you can get a 100% mortgage speak to an FCA regulated mortgage broker who can advise you of your eligibility and lending options.
High loan-to-value mortgage options.
New schemes are being introduced regularly so please do keep in touch and we can keep you updated as criteria changes. If you do have a deposit, then the general market is asking for just a 5% deposit.
The deposit can come from savings, can be gifted or an incentive from a builder on a new build property.
To discuss a 100% mortgage or no deposit mortgage a member of the team here at Fox Davidson please do call 0117 989 7950 or complete our enquiry form. We look forward to working with you.
A mortgage is a loan secured against your home or property. Your home or property may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
