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Before you buy your first home, you may not have saved up enough money for a deposit. Remember that most mortgage lenders will only lend up to 95% of the cost of the home. You could wait until you have access to 10% of the cost of the property that you want, or you could try and get on the housing ladder now, before property prices go completely out of your reach. This is where a 100% mortgage will come in useful.
100% mortgages are offered by many lenders, who are happy to allow people to borrow the full value of their property. This is especially popular with first-time buyers. However, even though 100% mortgages have advantages, there are also some serious downsides.
Many people worry about negative equity, which is when the value of your home is less than the value of the remainder of your mortgage. Should you take out a 100% mortgage, you are immediately at risk of going into negative equity. If house prices were to fall even a little bit, then you would be plunged into negative equity, which would be a disaster should you need to sell your home quickly or if you find it difficult to make your repayments. At the moment, house prices may be rising, but this is mainly due to certain property hot-spots skewing the figures, whilst other locations could be slipping.
There was a property crash at the end of the 80s, after which lenders became very wary of offering 100% loans, as deposits were needed to give customers a buffer against going into negative equity. As the nineties progressed, lenders started to offer 100% mortgages again, and some will even offer up to 125% of the property's price, to enable you to cover your costs and maybe furnish your home.
You may have to pay an above-average interest rate for the 100% loan, which covers the lenders for the risk that they are taking. You may also have to pay a high rate of interest due to the lack of competition in the market, with only a few lenders offering 100% mortgages.
You will probably be charged a MIG, which is a mortgage indemnity guarantee. This adds a sum to your loan of several thousands of pounds, which covers the lender, not you, should you not be able to make repayments and the lender has to sell the home for less than they are owed.
100% mortgages are good for people who can't afford to buy a house without already owning one. If you have just graduated, and are saddled with debts, a 100% mortgage which buys a property as well as consolidating your debts. is a great option.
Make sure you can afford the payments, even if interest rates doubled.
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