Last week Halifax released a 100% mortgage. They are not the first bank to do this, but its a good indicator that lenders are more keen to encourage people to take mortgages.
So what does a 100% mortgage mean? Well essentially you get a mortgage for a home without having to put down any money for a deposit. Usually lenders are looking for 10% or 20% of the value of a house and they will then lend you the rest. That is the more traditional way of getting a mortgage. So 100% mortgages means that a potential house buyer needs not to put down anything at all and the lender will provide you with the full amount. Saving a deposit can often be a huge part of stalling the buying for a house. Bearing in mind there are always other costs to put on top. So if you are looking for a house around £200,000, just for 10% you need £20,000. Plus all the additional fees, estate agent fees, solicitors etc. So this is an offer on the table from the lenders to get people to purchase a house. Ease the pressure.
So 100% mortgage is a good right? Well it comes with a few downsides.
- Its not completely 100% most of these mortgages need you to provide a family member to provide you with a deposit. They don’t lose the money but if the the people with the mortgage miss payments then this “deposit” is potentially at risk. It’s a guarantor really but with a huge pledge in the home. With the Halifax deal, the family member, or guarantor does get their money back but only after three years. (this could change, so please check with someone you trust before embarking on this deal)
- You don’t own any part of your house at all. When it comes down to it, there are a few advantages of putting down a deposit. Firstly if you can put down 20% you will have a better rate of mortgage. Meaning the repayments back will be less each month and the length of your mortgage will be less. Not everyone can afford 20%, but even if you have 10% it means you own 10% of your home. It is yours. So that’s a big advantage too.
It always not as easy as that. A house down in London, even a modest one can be £300,000, so 10% deposit is £30,000. This is higher than the average annual wage. So not really a obtainable amount for a lot of people.
100% mortgage then could be the only option for some people. So in that respect it is a good thing. But as mentioned above, you need a reasonably well off family to fork out the guarantee. With someone who has this option to get on the property ladder, has a family member willing to give up the money for 3 years as a guarantee, then great, As always with these things, if it works for you. It works for us.
Remember please speak to someone you trust and make sure the decision is right for you.
Your home may be repossessed if you do not keep up repayments on your mortgage.