Archives September 2019

100% mortgage. What’s the catch?

100% mortgage. What’s the catch?

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.

A new 15 year fixed rate mortgage released. What could go wrong?

A new 15 year fixed rate mortgage released. What could go wrong?

Is security the most important thing?

Security is a strong feeling, its something you want for your job, for your health and for your family. And a big part of managing your security is making sure you can manage your money. To be able to do that is knowing what you are going to spend each month. What your food will cost, your savings, petrol costs etc. But the biggest and most important one is your roof over your head. Your mortgage repayments! And a fixed rate mortgage can ensure what you are going to pay each month.

Fixed rate mortgage means that the interest on your mortgage doesn’t increase over a certain amount of time. Which means your mortgage repayments don’t increase or decrease.

Most fixed rates have a set time until they go onto the lenders standard interest rates. This is usually set by the lender or the Bank of England. To find out more about interest rates and variable mortgages and how they effect your mortgage payments, read more here.

Most fixed rate mortgages have a fixed rate of around 5 years, last week both Virgin Money and Yorkshire Building society have released a 15 year fixed rate mortgage. And that’s a good thing?

Thing is 15 years fixed rate mortgage means that your mortgage payments will be exactly the same for…well…15 years. Pretty self-explanatory. So for all you security lovers, you have payments, you know what they are, and they are set for 15 years. And that’s great.

There are some drawbacks though, firstly quite often the general interest rates are a little higher than usual. Meaning over that long time you will be paying back quite a lot. At the moment with the economy being so up and down, that may be a safe bet. Yes you are paying back more over time. But with variable rates you could be paying back even more.

The other issue is fixed rate mortgages always have a early repayment charge. Quite often it’s the length of the fixed rate period or there and thereabouts. For a 15 year fixed rate mortgage, it is a much longer period. And the cost of leaving is often higher than usual too. So if you choose to leave the mortgage it will be a costly endeavour

Virgin Money’s 15 year fixed rate mortgage has a early repayment time of up to 2025 at 8%. That means that at a mortgage of £400,000. That’s a cost of £32,000. Which is quite a chunk of change. But if you are in your “forever home” and you don’t need to leave earlier than 15 years then there really is not an issue. As you have that security.

But if the rates go significantly down over the years then you could be out of pocket.

It really is about what is important to you. What do you value more?

As always make sure you speak to someone you trust, when applying for a mortgage. Get the right advice and ensure that you understand the decision you are making.

Your home may be repossessed if you do not keep up repayments on your mortgage.