Skipton Building Society has recently launched a new 100% Loan-to-Value “Track Record” mortgage which enables first-time borrowers to finance the full purchase price of a property without a deposit.

This is different from other 100% mortgages as it is linked to the rent currently being paid, and the mortgage payment cannot exceed the average of the borrower’s last six months’ rent. It also needs to meet Skipton’s standard income multiples.

This product could benefit potential buyers who can afford to pay rent but struggle to save for a deposit due to ever-increasing deposit levels and rising rents. While there have been concerns in the past, the time now seems right for a new type of 100% mortgage, underwritten prudently and with affordability carefully taken into account.

Although not suitable for everyone, this product can help some new homebuyers get off the rental treadmill and enjoy the security of homeownership. However, we must change our thinking that property is a short-term investment and realize that it is a long-term home for us to build our memories.

While a 100% mortgage may seem tempting, it is important to understand the potential risks and drawbacks before making a decision.

What is a 100% mortgage?

A 100% mortgage, also referred to as a no-deposit mortgage, is a loan that covers the full cost of a property purchase without requiring an upfront payment from the borrower.

While this means that the borrower is not required to have any savings or equity to be eligible for the mortgage from a deposit standpoint, it is still advisable for potential borrowers to have funds available to cover general mortgage costs such as Stamp Duty (if applicable), valuation, legal and moving fees. Additionally, it is important to consider the funds necessary to furnish the property.

We also recommend that borrowers set aside a “rainy-day” fund equivalent to three months’ worth of monthly mortgage payments.

How does a 100% mortgage work?

In a typical mortgage, the borrower is required to provide a deposit of between 5% to 20% of the property’s value as a form of security for the lender. This reduces the lender’s risk in lending money to the borrower. Generally, the larger the deposit, the cheaper the mortgage rate the borrower can obtain.

However, with a 100% mortgage, the borrower is not required to provide an upfront deposit. Instead, the lender finances the full purchase price of the property. The borrower is then responsible for repaying the entire loan amount over the term of the mortgage.

What are the advantages of a 100% mortgage?

With a 100% mortgage, there is no need for you to provide a deposit when purchasing a home. However, you may require a family member to have funds available to act as a guarantor.

It is important to note that you will still be responsible for covering the various fees associated with buying a house.

What are the disadvantages of a 100% mortgage?

There are some disadvantages of 100% mortgages and it is important to consider individual circumstances for each application.

• If house prices drop, you could slip into negative equity and end up owing more than the value of your house
• You are likely to need a guarantor – that person will be at financial risk
• There are less lenders, however as mentioned above, Skipton has recently released their product which adds to a growing list of 100% lenders
• You are likely to pay a higher interest rate for your mortgage

Can we help?

Our team of specialists are here to help and recommend a suitable product for your circumstances. This may be a 100% mortgage, however there may be other alternatives to explore and our team will discuss those with you.

For more information, you can contact us on 01322 553282 or online.