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100% Mortgages Frequently Asked Questions
Listen below as Michael Webb talks all about mortgages for 100% Mortgages.
In 30 minutes, you’ll know a lot more about getting your first mortgage sorted.
100% mortgages with Michael Webb.
Can I get a 100% mortgage in the UK?
Yes there are a few options for 100% lending and they are structured in different ways. They have changed significantly over the past 15 years – these deals were really prevalent in the mid-2000s. You would come in to see a mortgage broker with no deposit – just a couple of thousand pounds for legal fees and valuation costs. Usually that worked out well for people.
There were also controversial things like the Northern Rock Together mortgage. These were very common and allowed people to borrow up to 125% of the property value – 30% of which was unsecured.
A lot of that has gone and lenders have had to get a bit more innovative with how they’ve structured 100% mortgages – but they are available.
What types of 100% mortgages are available?
The most recent launch is the Skipton 100% mortgage which has criteria around using your rent history. The mortgage payment needs to be at least a pound less than you have previously paid in rent over a certain track record. You have to be over the age of 21 and be a First Time Buyer.
You have to have good credit and be able to evidence 12-18 months of continuously paying rent. That rent is used as the initial affordability – so if you’re paying £800 a month, that’s as much as your mortgage payment can be. There’s also a further affordability check.
So it’s become much more stringent to get a 100% mortgage. There are other products that drop in and out of the marketplace where you can use equity in other property, such as your parents’ home. So if you were to default, the lender could claim against that property for any losses.
There are some niches in the market where, although it’s not a 100% mortgage, they will allow you to borrow your deposit unsecured. You could borrow your £20,000 deposit and that monthly payment gets put into the affordability calculator and that determines how much you can borrow. From the lender’s point of view, you could potentially have borrowed that amount anyway, e.g. for a car. Lending it for a property doesn’t change their risk in any way.
How does 100% mortgage financing work?
If you’re buying a property at £200,000 you would get a £200,000 mortgage. Your lending would be based on whether you’d be eligible. With Skipton it’s under that rental structure.
You could be eligible because you’d get that deposit borrowing elsewhere. You might have a family member to guarantee you, or let you use their equity.
There are other things that family can do too. Family deposit mortgages involve families putting the deposit into a savings account, which acts as the guarantee. If you defaulted on the mortgage then those savings are at risk. Otherwise, at the end of your deal the savings can be withdrawn and you just remortgage. So there are different structures, with lenders being quite innovative – with varying success rates.
What criteria do I need to meet for a 100% mortgage?
For the Skipton 100% mortgage there is only one product, which is a five year fixed deal. It’s on a maximum term of 35 years and it’s for tenants – so you have to be in rented accommodation. You can’t be living at home.
They want to see your capability to finance and run a household – not just giving your parents £50 a week. Running a household is a lot more expensive than that. You’ll need to supply 12 months bank statements as evidence.
You need to be 21 or above and you have to be a First Time Buyer. You also need to have a very good, clean credit score with no adverse credit. The criteria then sets limits on the maximum mortgage payment, aligned with the rent you’ve paid, and that also dictates your maximum purchase price.
Are all lenders offering 100% mortgages? Is it just Skipton?
[podcast recorded in June 2023] Skipton’s hit the media the most. As I’ve said, there’s other innovative solutions that lenders have come up with to help people onto the property ladder, but Skipton is the cleanest 100% mortgage deal.
So, no, not all lenders are offering 100% – in fact it is a rarity. There are a lot at 95% but 100% is very uncommon right now.
Can I get a 100% mortgage as a First Time Buyer?
Yes – most 100% solutions are targeted towards First Time Buyers. For the Skipton 100% mortgage you definitely need to be a First Time Buyer. Some of the other lenders may or may not take a view on it.
Can I get a 100% mortgage without a guarantor?
Yes – this is what Skipton has done with its 100% mortgage. They’re using your rental track record as evidence that you can afford to pay the mortgage.
Putting you on a five year fixed rate deal gives you stability over that time to allow for fluctuations in value. It allows you to pay some of the mortgage down before you need to refinance.
One of the key considerations of any 100% mortgage is the potential that you could go into negative equity at some point. If you buy at £200,000 and the market drops by 10%, you won’t have paid that much off your mortgage, so you will be in negative equity for a while.
So Skipton’s longer term fixed rate deal ties you in for long enough to pay some of that mortgage off and ride the current market uncertainty.
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What about if I’m self-employed? Can I still get a 100% mortgage?
Yes, the Skipton mortgage is open to self-employed people. It will again depend on your income and your credit. If you are self-employed you still have to meet all the other income and credit criteria.
Can I get a 100% mortgage with bad credit?
It’s unlikely. There is already a fair amount of risk to a 100% percent mortgage. Skipton are very clear with their 100% mortgage that you need clean credit and a good credit score.
If you’ve been renting, you’ve had utilities and you’re repaying any debts, your credit should be clean. You’d have a pretty decent credit score, typically. But if you’ve had missed payments recently, things like CCJs, defaults or arrears, it’s highly unlikely that a lender is going to take the risk at 100% mortgage with that credit profile.
What are the pros and cons of a 100% mortgage?
The big pro is that you don’t need to put a deposit down, which means you may be able to buy a property faster than you expected. It also means you get into home ownership quicker, and your monthly payments are paying down the debt to create equity over time. When you rent, you’re paying someone else’s mortgage.
The potential downside is what happens if you need to move. You need to find out if you can port that mortgage. There’s also no guarantee you’re going to create equity from your mortgage payments. The property market could fall by 10 percent in a year and you will not pay off that much of your mortgage in that time. At the beginning of say a 35 year mortgage you’ll be paying off very little of it and you could fall into negative equity.
It’s important to understand the risks. If you’re in negative equity you can’t sell the property without adding cash to settle the mortgage – you can become trapped within that property as a ‘mortgage prisoner’.
What are the benefits of putting down a deposit?
Typically, putting more deposit down reduces the risk to the lender, so they will offer lower interest rates. The swing of those interest rates has changed, though, and rates on a 95% and 75% mortgage are much closer than they were a year ago.
Putting down more deposit also makes you less likely to go into negative equity. You can move and still pay off the mortgage. Plus, obviously, the less you’re borrowing the less your payments will be. So the mortgage will overall be more affordable for you.
We would always recommend that if a deposit is available, use it. It will be better for you. But there are 100% mortgage solutions for those that don’t have a deposit available.
Are there any alternatives to a 100% mortgage?
The main alternative would be a gifted deposit from your family. This is very common for First Time Buyers. I’m not sure if this reflects the wider market, but in our experience more than 50% of First Time Buyers are getting some help with the purchase from parents or grandparents. It might be a contribution towards the deposit to make it bigger, to reach 10% for example, or they might have no deposit at all.
The Bank of Mum and Dad is one of the largest lenders in the UK. They are giving out enormous amounts of money towards property purchases.
You can also look at schemes to save your deposit, like the Lifetime ISA or LISA as they’re branded. The government will top up your savings towards the deposit.
Potentially as a tenant, if you’re looking to buy the property you’re living in and your landlord is very kind, you could buy that property with a gift of equity deposit. Say the property is worth £200,000 but because you’ve lived there for 10 years, the landlord might accept £180,000. Perhaps you’ve looked after the property; and it means they don’t have to pay estate agency fees. The lender will accept that 20% discount as your deposit.
The same will apply if you’re buying a property from a family member, so those are some avenues to investigate. But the main solution is saving the deposit, which can take time.
What should I do if I can’t get a 100% mortgage?
Look at the alternatives. Can your parents help with a gifted deposit? If not, how long is it going to take you to save? I appreciate that in the current world we’re living in, a lot of people are finding it hard to pay their bills. Saving is not an option for a lot of people.
But do look at things like the government Lifetime ISA and how they’ll help you. If you’re renting, ask your landlord if they’re looking at exiting the market. It might be a good time for them to do it.
If your parents are looking to downsize, maybe they can sell the property to you – saving some money and helping you at the same time. In the end, though, if none of those work, you will need to save a deposit.
How do I apply for a 100% mortgage? How can a mortgage broker help?
Approach a whole market mortgage broker who can help you establish whether you would meet the criteria, particularly for the Skipton 100% mortgage, but also for other schemes.
At that appointment with the mortgage broker we’ll run through your situation and see where you may fit within lenders’ criteria. I recommend speaking to a mortgage broker rather than trying to do this for yourself. There are a lot of hurdles to get over and a lot of mistakes that could be made – just because you won’t have the same level of experience of how and what to present to a lender.
Your home may be repossessed if you do not keep up with your mortgage repayments.