Should I get a 100% mortgage?

Zero deposit, or 100%, mortgages are no new thing. But, after a brief break from the lending scene, no deposit mortgages are back on the market! Despite being billed as a blessing (not a curse) for first time buyers in our recent blog post, 100% mortgages are being treated with caution by many would-be homeowners. So, what is a 100% LTV mortgage and is it the right choice for you?

In this guide, we delve deeper into the zero-deposit product comeback as well as share the pros and cons of buying your first home without a deposit.

What is a 100% mortgage?

As the name suggests, a 100% mortgage is just that. With this product type, the lender will finance 100% of your property purchase, meaning there’s no need to waste any time or money saving for a house deposit.

Traditionally, mortgages require you to contribute at least 5% of the price of the property, with the remaining percentage funded by your lender.

Are new 100% mortgages different from previous deals?

Unlike previous zero-deposit mortgages, many of the new 100% mortgages provide finance without the need for a guarantor. This saw them hit the headlines recently as many home buyers struggle to get onto the property ladder due to rising energy costs, rent increases, and the cost of living crisis.

Is the zero-deposit mortgage type popular?

100% mortgages are growing in popularity, with a recent survey revealing that around 26% of first-time buyers would consider a 100% LTV mortgage.

The same study found that many of those who would consider a zero-deposit mortgage couldn’t justify the inflated price tag. In fact, a whopping 79% of people considering a 100% mortgage wouldn’t be prepared to pay a higher monthly repayment to secure the product.

What are the benefits of 100% mortgages?

There are of course pros and cons to this particular mortgage product. The 100% mortgage is an excellent option if you’re struggling to set enough money aside to contribute to the purchase as a deposit. This is a common scenario for first time buyers who are renting a property and have no extra funds to purchase a home of their own.

With a 100% mortgage, you aren’t paying your landlord’s buy-to-let mortgage, you’re building your equity stake in your first home.

Are there any drawbacks to zero-deposit products?

The bigger mortgage will mean that you pay more every month in comparison to buyers who have a lower loan-to-value (LTV). As a result, you’ll spend more on interest. Due to the higher LTV, you may have to lower your property buying budget and your expectations. When the time comes to remortgage, you may not be able to access the best deals due to a higher LTV too.

The risk of falling into negative equity is another worry for those with or considering a 100% mortgage, especially considering current conditions, as The Times Money Mentor describes:

“The big concern around 100% mortgages is that it can increase the risk of negative equity. This is where the value of a property falls, meaning you owe more than your home is worth. If you have bought without a deposit, the amount of equity they have is even lower. Figures show that house prices are now beginning to fall, raising the risk of negative equity.”

Is a no deposit mortgage right for me?

If you’re considering applying for a 100% mortgage, weighing up the pros and cons mentioned above is essential. Thankfully, you don’t have to do this alone! Our mortgage advisors are here to advise and support you with your choice. Get in touch today to discuss your options.