Is it possible to get a 100% LTV mortgage with no deposit?
100% mortgages are available
With the current economic climate people are finding it harder than ever to get onto the housing ladder. The rental market is incredibly strong, which means that landlords are able to charge relatively high rents that are often considerably higher than you would be paying in mortgage payments. What this means is that it is incredibly difficult to save for a deposit and therefore this means that many more people are finding that they cannot get onto the housing ladder until they are much older and their salaries have increased to a level that actually allows them to save.
So are there any mortgages with no deposits?
In reality there are very limited options available if you are looking for a 100% loan to value mortgage. The reason for this is that these types of mortgages are seen as representing an extremely high risk to lenders as there is a possibility of you going into negative equity as soon as you make the purchase if there is a slight decline in house prices. In the past lenders have provided anything up to 125% mortgages, but as the credit crunch hit, many people on these types of mortgages struggled to make their repayments and so the repossession rate increased. Therefore now, lenders are extremely careful when offering this type of product.
If it is so risky, why are lenders offering 100% mortgages with no deposit?
Your lender may need the security of a guarantor
Although you, as the borrower, see your mortgage as requiring no deposit, there are actually some very strict terms of lending and in order to qualify for a no deposit mortgage you will need to have a friend or family member to act as a guarantor for 25% of the property price. This is, in effect, an insurance policy for the lenders as should your fail to keep up your repayments and your house has decreased in value, then your guarantor will be liable to repay up to 25% of the original value of the property to the lenders. Unless you are in a very stable financial situation then this could be a risky option to take. However it does allow you to take advantage of money that is currently tied up in a relative or friend’s house without them actually having to do anything.
There are a number of criteria that are associated with this type of mortgage. The minimum value of the property you are looking at has to be at least £75,000 and it must also be of a standard construction. This type of mortgage will also not be granted for any ex Local Authority flats. In addition to those, you must be either a first or second time buyer in order to qualify. The minimum mortgage amount that will be granted is £25,000 and the maximum is £250,000. Obviously the smaller the loan amount, the lower the risk to your guarantor of having to pay large amounts of money to your lender should things go wrong.
In addition to the above criteria, there are also age restrictions on this type of mortgage. For first time buyers the minimum age upon application is 25, for second time buyers it is 21. There is also a maximum age at the end of your mortgage term of 70. All of the usual requirements regarding proof of income also apply.
What are the interest rates?
You will find that the interest rates on this type of no deposit mortgage are much higher than for mortgages that you have a deposit for. Current interest rates sit well above most lenders’ standard variable rate due to the high risk nature of the product. The fixed term periods are either two or three years and are available only as a repayment mortgage.
Getting off a 100% LTV mortgage
If at all possible you should spend the first two or three years, depending on the fixed rate term you choose, saving as much as possible in order to put together a 5% deposit in order to remortgage at the end of your fixed term deal. If you can do this then go and speak to a mortgage broker who will then guide you to a suitable mortgage product to transfer onto.