Getting on the property ladder for first-time buyers has become increasingly difficult over recent years with 85% citing saving for a deposit as the biggest issue according to a recent homeowners study.
In fact, first-time buyers need to save on average at least £33,211 (and a staggering £110,182 in London) before they can even consider stepping into the house buying arena nowadays. And while Help to Buy Schemes have helped a little, 6 out of 10 renters still cite owning a property as merely a pipe dream.
But — are they right? Is property ownership reserved only for the well-off these days?
In this article, we explain how the revival of 100% mortgage options for first-time buyers could be the key to securing your first property.
What is a 100% mortgage?
A 100% mortgage is a loan for the whole cost of your property.
They’ve been recently re-introduced by some of the major players in banking, like Lloyds and Halifax, and allow you to borrow up to £500,000 without putting a penny down in terms of a deposit.
How does it work?
To be offered a 100% mortgage you need a close family member (usually parents or grandparents) to act as your guarantor for the loan. In layman’s terms, this means that they would be liable for the debt if you defaulted on the repayments.
You’ve got two options:
Guarantor mortgages: with this type of mortgage, your guarantor commits to guarantee your mortgage repayments. If you can’t meet the payments then your lender will expect the guarantor to cover the costs If they don’t, then both your property and theirs could be repossessed.
This is known as using a property as security.
Family deposit mortgage: your designated family member must deposit between 10-20% of the overall mortgage value in cash into a designated savings account. They can’t access this money for a fixed period of time (usually around 5 years). If you meet the repayments and any other conditions for the set period of time, then the money is returned to your relative in full (and you benefit in many cases from the interest). If you default, then this money will be used by your lender to recover any losses.
This is known as using savings as security.
What are the advantages of 100% mortgage?
Quite simply, you can buy a home without needing to save for a deposit. Plus, for many mortgage payments will be equal or less to rental payments.
Are there any disadvantages?
House prices rarely stay static — that means they go up and down. While you can’t predict the future, you do need to do your research and ‘buy right’ (something that should be a given anyway). This is because with 100% mortgages, any drop in property prices could mean that you find yourself in negative equity (essentially meaning that your home is worth less than what you borrowed for it).
However, remember what goes down does tend to go up, so it might just mean that you need to wait a little before you can sell and move onto property number 2 in the future.
Are there any other options?
Yes – although for any other option, you need a deposit of some sort.
Buyer schemes – ‘affordable’ home ownership is high on the political agenda, with Help to Buy and shared ownership initiatives in place to make deposit payments more manageable. You do typically still need at least 5% of the overall house price though.
Gifted deposit – the so-called ‘bank of mum and dad’ helps you out by gifting you the money needed for a deposit. Some lenders may have a maximum percentage of what this can be, and your benefactor may need to sign a declaration that it is a gift and doesn’t need to be paid back.
The moral of the story? Finally, in the post credit crunch era, banks are lending again. Yes, there are clear conditions that need to be met, but a deposit payment no longer needs to be the blocker that prevents you buying your first home.
For more information, call our team on 01482 655346.