A 100 percent mortgage is a type of mortgage where you borrow the entire purchase price of the property and put down no deposit roughly meaning that you can buy your dream house without having saved any money. Such loans were very popular before the last financial crash. In this particular article, we will be dealing with everything you need to know about 100 percent loan for a home.
Should you take out 100 percent mortgage?
Finding your dream house and then owning one is a fairy tale landing for most people. In today’s market, the average price of property stands around 10-12 times the average salary and in such a scenario, getting on the housing ladder can prove to be an uphill and extraordinarily tough proposition. Before the financial crash in 2008, it was common for banks to give 100 percent and even 125 percent mortgage. You could find your dream house without having to worry about making a payment or deposit upfront. Some financial institutions even specialized in bad credit clients providing 100 mortgages for bad credit. After the financial crash, such loans disappeared from the loan market like footprints in the sand.
What Are The Advantages Of a 100 Percent Mortgage?
The principal advantage of a 100 percent mortgage is that it allows you to buy your dream house without having saved any money. If rent is too expensive in your area and you are feeling that house prices are going to keep on rising or if you are a student who knows that he/she will be working in your university town you can definitely go for 100 percent mortgage.
Barclays has brought back 100 percent mortgage offer recently. In such a mortgage, you require a guarantor or a “helper”, often the homebuyer’s parents or grandparents, to put in 10 percent of the house purchase price into a savings account linked to the mortgage. This cash is returned back to the guarantor after three years with interest added, provided the borrower has kept up with his/her mortgage repayments.
What Are The Risks Of 100 Percent Mortgages?
The biggest risk of a 100 percent mortgage is falling house prices. If the value of the property decreases, you could be in negative equity-owning the bank more than your property is worth i.e. an increased loan to value ratio that puts you in negative equity and a disastrous economic condition. When such loans were common, people took out these mortgages in a hope that property prices will keep on rising and they would quickly reduce the loan to value. When the financial crash happened in 2007/8, you can very well understand the hit borrowers with 100 percent mortgages took. Many borrowers were faced with the prospect of negative equity and high repayments. In such a scenario, you are left with no capital in your own property to cushion you from the falling prices.
Now lenders have found a new way to offer 100 percent mortgages providing an alternative to gifted deposits for family members when they turn guarantors, favoring those who have such a luxury because not many can get such a guarantor or helper. There is also a definite lack of choice because only a handful of lenders provide such mortgages. Moreover, the risk of negative equity is always looming and you have no control whatsoever over housing prices
So if you have enough savings we would suggest you go for a traditional mortgage, because the bigger your deposit is the better rate you will rake and there is no fear of an impending negative equity. 100 percent ltv heloc i.e. 100 percent loan to value heloc is not an easily found option in today’s market but in case you feel that house prices will keep on rising, then this is your go-to option, my friend, because with such a mortgage you can quickly build up an equity stake through property price inflation alone.
Published by knorr kendra