Compare 100% LTV mortgages

How to get a 100% LTV mortgage

A 100% loan to value (LTV) mortgage is one of the most controversial types of mortgage available, not to mention one of the most difficult to be approved for.  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. But how do they work and what should you be aware of?

What is a 100% LTV mortgage?

These types of mortgages are for when the borrower cannot put down a deposit but can afford the monthly repayments. 

For example 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.

Can I get a 100% mortgage in the UK?

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.

Why are there so few 100% mortgages available? 

Very few lenders now offer no deposit mortgages. But before the financial crisis of 2008 100% mortgages were more common, in fact loan to value mortgages of 110% and even higher were common 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.

What are the risks of 100 percent mortgage?

Unlike a typical mortgage, a 100% LTV requires no up-front deposit. While this is fantastic for those with no savings looking to get on the property ladder, it does typically mean the lender will charge a higher level of interest to compensate for the additional risk.

Therefore, if you do have a deposit, you are more likely to get a cheaper mortgage overall by putting forward some money and going for a lower LTV mortgage.

Will I get approved for a 100% mortgage?

Even if you have a guarantor 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.

What is a 100% guarantor mortgage?

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.

What is negative equity?

Because you have borrowed 100% of the value of the property, a fall in the value of the property will mean you suddenly owe more than it is worth. This is called negative equity.

House prices generally rise over the long term, but until prices pick up again you will find it hard to move, because the money you’ll receive from the buyer won’t cover the mortgage costs you need to pay back to your lender.

And the lender is taking a risk, because in the unfortunate situation of needing to repossess your property, it will be seizing an asset that is worth less than the outstanding loan.

Are 100% mortgages available for first time buyers?

You will have to have to prove you can afford the monthly repayments even if you have a guarantor in place. First time buyers who apply for 100% mortgages will also need to have a very good credit rating.

100% mortgages - the facts

What are the alternatives to 100% mortgages?

Consider trying to save for a small deposit. The UK Government has a mortgage guarantee scheme which allows borrowers with a deposit of just 5% to apply for a mortgage.  Other ways of getting on the property ladder include:

Family mortgages

These mortgages allow family members to help their relatives by putting a deposit into a savings account run by the lender. The savings have to stay in the account while the mortgage is being paid off. 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. You can also get family mortgages where the money is used to offset part of the interest on the mortgage, but with these types of mortgage no interest is paid on the savings.

Government mortgage guarantee scheme

This scheme was announced at the 2021 Budget and was launched in April 2021. Lenders taking part in the scheme are able to offer 5% deposit mortgages which are government backed. The scheme will last until 31 December 2022.