100% loan to value (LTV) mortgages used to be more commonplace, but, following the 2008 financial crash, are now very unusual and difficult to be approved for. According to recent mortgage statistics, these accounted for just 0.2% of all UK mortgages, highlighting just how rare they are.
It’s known as a no deposit mortgage, because a 100% mortgage means having to borrow the entire value of the property you want to purchase. The 100% is the LTV ratio – typically the higher the LTV ratio, the greater the risk for the lender and therefore the higher the interest rates.
These types of mortgages are for when the borrower cannot put down a deposit but can afford the monthly repayments.
Mortgage lending is based on how much the lender can afford to lend you at a given rate. If you earn £30,000 a year, a lender will usually be able to lend you four times that – £120,000.
If you had £21,000 saved, for example, you would be able to add that to the total you can borrow to get a property. So in this example, a £140,000 house with £119,000 of borrowing is an 85% LTV, as the ratio of borrowing to house value is 85%.
But what if you are buying a house with no deposit? What if you want to borrow the full 100%? That’s what a 100% LTV mortgage is for. It means you borrow the total amount to purchase the property and don't put a sum of your money down as a deposit.
However, 100% mortgages are now much harder to come by than before the 2008 financial crash.
As 100% mortgages are high-risk they are often limited, normally to existing borrowers, or in some cases they are released in only a limited amount to help restrict the overall risk the lender is taking on.
In most cases, 100% LTV mortgages may be available only if you have a guarantor – namely someone willing to take on the risk associated with the mortgage.
This means that they will take responsibility if you fail to keep up your payments, but in some circumstances this could lead to them having their home repossessed.
Before the financial crisis of 2008 100% mortgages were more common. In fact, LTV mortgages of 110% and even higher were available as lenders offered borrowers deals that allowed them to consolidate credit card and loans with a mortgage.
Since 2014 stricter lending criteria has meant lenders now take a more cautious approach when approving mortgages
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A guarantor mortgage is when a family member or friend agrees to guarantee the mortgage on behalf of a borrower. Quite often 100% mortgages are ‘guarantor mortgages’.
The guarantor provides the security so they are responsible for paying the mortgage if the borrower cannot pay it.
When choosing a guarantor, you need to make sure they are aware of the risks involved, they should probably get legal advice before signing any documents.
These mortgages allow family members to help their relatives by putting a deposit into a savings account run by the lender.
The idea is that the savings can be used if the borrower fails to make a repayment. The savings do earn interest, however they need to stay in the account, until the borrower has paid off, or switched the mortgage deal.
Alternatively they may also be able to borrow against the equity in their property to provide the deposit.
You can also get family mortgages where savings are used to offset the loan - the savings act as a deposit
These work similarly to family deposit mortgages, but a key difference is that no interest is paid on the savings. However, the savings will offset the amount of interest paid on the loan - for example savings of £50,000 offset against a property costing £200,000, means the borrower will only pay interest on £150,000 of the loan.
Normally, once the borrower has repaid a proportion of the loan within an agreed timeframe, the savings will be transferred back to the family member.
Even if you have a guarantor or a family member willing to put up their savings to assist you, you could still be turned down for a 100% LTV mortgage. Mortgage lenders carry out comprehensive checks, known as affordability checks, and these may throw up issues such as a poor credit rating.
Allow borrowers to purchase a home without a deposit saved, which could help them get on the property ladder faster and start building up equity
Can allow family members to help via guarantor or family deposit mortgages
The interest rate is higher
You will have no equity (share) in the property until you start to make repayments which puts you at a higher risk of going into negative equity if property prices fall – this may prevent you from moving or remortgaging until property prices rise again
You will likely have to rely on a family member to act as guarantor or put down savings, which put their finances at risk if you were ever unable to repay your loan
Even putting down a 5% or 10% deposit will greatly increase the number of mortgage deals and rates available to you.
Usually, the lower the LTV ratio, the lower the interest rate, so putting down a deposit should hopefully get you a cheaper interest rate than a 100% mortgage. This is because the greater your share of equity in the property, the lower the risk for the lender.
A deposit also increases your equity share so it makes it less likely you'll fall into negative equity if property prices were to fall.
Plus, putting down a deposit means you're less likely to need to rely on a family member to act as a guarantor or put their savings down in a family deposit mortgage.
No, you will usually not be able to get a 100% buy-to-let mortgage.
Typically buy-to-let mortgage lenders require a minimum of a 25% deposit (although the amount can vary from 20-40% depending on the lender and the borrower's circumstances).
The main alternative to a 100% mortgage is to save a small deposit in order to access lower LTV products.
The UK Government has a mortgage guarantee scheme which allows borrowers with a deposit of just 5% to apply for a mortgage.
Learn about more government schemes and other alternatives to 100% mortgages below.
If you're struggling to save a deposit, a lifetime ISA may help. You can save up to £4,000 each year and the government will provide a tax-free 20% bonus on savings. However, you have to use the cash for your first home or retirement – otherwise you won't get the bonus money and will pay penalties on what you've saved.
If you're able to save a small deposit, shared ownership may also be an option for you. This allows you to purchase a percentage of a property and pay rent on the rest. You can then normally increase your share in the property in increments over time, in a process known as 'staircasing'.
There is also the First Homes scheme in Engand, which can help first time buyers purchase homes for 30-50% less than market value. You must meet certain criteria and local councils may set additional eligibility criteria - find out more on the UK government website.
If you're struggling to save up a deposit, it might be worth seeing if a family member would be willing to gift you a cash sum to cover a property deposit.
This is now a reasonably common occurrence, with 'the bank of mum and dad' said to have become one of the UK's largest mortgage lenders in recent years.
This will need to be confirmed to your solicitor with a gifted deposit letter. This is essentially to confirm that you won't have to pay the money back at any point and that the family member has no right to the property.
In some cases, new-build developers may offer loans to help you with a deposit to purchase a property from one of their developments.
It's important to check the terms and conditions of the loan, and make sure that you can afford to pay this back in addition to your mortgage repayments.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
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