Nothing up front – What is a 100% mortgage and is it for you?

couple with moving boxes

You may have seen in the news recently that one lender, Skipton Building Society, is offering a no deposit, 100% mortgage. So, what does that actually mean for you, what are the pros and cons, what will you need to get one, and is it worth investigating as an option?

What actually is a 100% mortgage and why should you consider one?

Well, in short, it exactly what it sounds like. If you are approved for a no deposit mortgage you will be given a loan to cover 100% of the cost of your new house. That means, assuming you meet the criteria, you could potentially skip years of saving up and enter the housing market much more quickly. It won’t cover all your sundry costs for the move though, so you will still need some savings to cover expenses.

Raising the deposit for you first home is quite often a barrier to buying. In fact, sometimes it is the biggest barrier for new buyers. The cost of an average UK house for a first time buyer varies region to region but the UK average is currently hovering around £245,000 to £250,000. That means at a minimum 5% deposit you would be looking for around £12,500 plus the cost of moving. However many buyers tend to put a larger deposit down to reduce the ongoing mortgage payments and get a better rate. That is a big ask and a lot of savings for some people so, you can see why a 100% mortgage would be an attractive proposition. At the moment because of the rise in the cost of living, even buyers looking for homes in areas with lower cost housing may well be finding saving for a deposit more difficult than ever.

100% mortgage products have been available in the past, but they haven’t been around for over a decade. At one point they were a reasonably common way for people to get onto the housing ladder. Now they may well be set to return but in the meantime, at least one lender is offering them.

Why would you consider a no deposit mortgage?

Well, there are a lot of potential benefits to them if they are the right product for you, for example:

  • Not paying the deposit means you don’t need to worry about finding that lump sum or resorting to the bank of Mum and Dad to raise it.
  • It releases any money you have already saved to help with the move.
  • It is common for first time buyers to save for many years to raise the money for a deposit. The 100% offer could get you on the housing ladder quickly.
  • People with young families are sometimes short on savings but have steady work with good incomes. Their current circumstances therefore mean they find it difficult to save considerable sums for the deposit without hitting the household budget though.
  • You are not paying rent to a landlord, instead you are starting to work towards having equity in your own home.

So, as you can see there are some very attractive aspects to the 100% mortgage deal and for some people it could get them out of renting and into their own home.

What will the lender want to see when you apply?

To begin with, just a reminded that in a general article like this one, we can only really overview what you will need. You do need to talk to us about your personal circumstances so we can guide you to the right products for you. As a general overview though, to qualify for a 100% no deposit mortgage:

  • You must be able to show that you are a first time buyer and be over 21.
  • You must be able to afford the mortgage just as you would with any other product. Responsible lending is still part of the process so you can only get this, or indeed any kind of mortgage, if you can demonstrate you can afford it. We can guide you through the application process but it’s best to chat as soon as possible, so you know what to aim for. As a good starting point your utilities and other bills should show a good payment history.
  • You will need to demonstrate a history of rental payments. Usually, they will want to see a minimum of a full year of payments and proof that you have been able to afford them.
  • You should be able to show a good credit rating. The better your credit rating is the more chance you have of getting the mortgage you want regardless of which lender or deal you are looking at and this one is no different.
  • The other usual requirements will apply, steady income, affordability checks and so on are all still relevant.

Applying is not that different from any other kind of mortgage but we will need to sit down with you and run through what is needed, if this is a good option for you, and when and how to apply. Overall though, if you are in the right situation then a no deposit mortgage could really work for you.

So, what do you do if you are thinking about a no deposit mortgage?

Talk to us. There is always a lot to think about with any long term financial decision and there are a lot of options besides a 100% mortgage to consider. As with any financial product it will all come down to what is right for you, so we need to really look at what will work. 100% mortgages do have some potential things to think about, not the least being that not paying a deposit will probably mean a higher monthly outgoing. At the moment the Skipton offer is a 5 year fixed rate of 5.49% and you need to understand what that will mean for your budget.

There has always been what seemed a rather odd situation to buyers where people who were paying more in rent than the cost of a mortgage but were still not hitting the criteria for the lenders. Skipton may well have opened the floodgates by overturning this and there are already some good offers appearing to help first time buyers and others looking for a mortgage.

Call us and we can arrange an initial chat to see what is right for you. A no deposit option may be the answer, but you do need to sit down and look at your personal circumstances with an advisor to make sure you get the right solutions.

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