Skipton building society made the headlines recently by being the first lender to offer a 100% mortgage since 2008. 

100% mortgages could be a way to get onto the property ladder even if you haven’t saved a deposit, but they’re not without their pitfalls. 

In this blog, we look at what is meant by a 100% mortgage and identify the pros and cons. 

Please note that Cobbles are estate agents, not mortgage brokers. You should seek professional advice from a mortgage broker before making any big decisions. 

What is a 100% mortgage?

A mortgage is the money you borrow to buy a property. Typically, buyers save a deposit and use this to show lenders they are serious about owning a house. Usually, a larger deposit means a better rate for mortgage repayments because there is less risk for the lender. 

However – as you’ll know if you’re in this situation! – it is very difficult to save a deposit when you are already spending the largest proportion of your income on rent. For this reason, Skipton and a few other lenders have decided to lend buyers the whole price of a property. This is called a 100% mortgage.

 Instead of taking the ability to save a deposit as a sign of being responsible about borrowing money, lenders will look at buyers’ renting history – if you’ve kept up your monthly rent payments, lenders will take it as an indication that you have a responsible attitude to property. 

What are the advantages of a 100% mortgage?

A 100% mortgage allows responsible people with secure jobs to get onto the property ladder. It breaks the cycle of renting. It means that people can see a return on their monthly financial outlay and ultimately enjoy the security of owning their own property. 

What are the disadvantages of a 100% mortgage?

100% mortgages are risky. They are considered to have played a large part in the financial crash of 2008. Lenders loaned more money than they could afford, often to people who could not afford the repayments. With too much money going out and not enough money coming in, some banks and building societies collapsed completely. 

Of course, there is still a risk that that could happen now. However, because so few lenders are offering a 100% mortgage, this risk is reduced. Similarly, lenders are asking for more proof that buyers can afford repayments. This risk is also reflected in the mortgage rate, which might be higher than for a property bought with a deposit. 

One very real risk, however, is that buyers could find themselves in negative equity. This is when the amount of money you owe your mortgage lender is greater than the value of the property. With property prices being volatile at the moment, this is a potential issue that buyers should be aware of. 

Seek professional mortgage advice

We’re pleased that 100% mortgages are helping more people to own their own homes, but we feel it’s important that first time buyers are aware of the potential risks too. 

If you’re thinking of taking out a 100% mortgage or just need more information, talk to your bank, building society or independent mortgage broker to get the relevant facts for your situation. If you have never spoken to anybody about mortgages before, Cobbles can put you in touch with an advisor to get you started.

Sell and rent property in Guildford

If you’re excited by what this new trend could mean for the property market, we’re here to help you. Whether you want to sell or rent your property, our expert team would love to support you. Contact us today on 01483 457 000 to find out more.