Are we seeing the return of 100% mortgages?
The Daily Telegraph reported in December 2016 that some lenders have reintroduced a 100% mortgage, but there are conditions.
A barrier for many people who want to buy their first home is the large deposit they need for a mortgage. A few years ago 100% mortgages that required no deposit were common, but after the financial crisis in 2008 and the tightening of regulations, such deals vanished.
Some lenders offer a less than 100% mortgage but will loan borrowers part or all of the deposit money. There are strict affordability tests to make sure that the borrower can afford both the monthly mortgage payments and the deposit loan repayments. This arrangement will suit high earners with little deposit saved up. Most high street banks will not provide loans for house deposits.
One building society provides a 100% mortgage, but a parent of the borrower must take out a charge on their home to secure the loan.
It is less expensive to buy a house using a large deposit as mortgage interest rates are lower for high-deposit loans, and the higher value of the loan, the more a borrower will pay in interest over the lifetime of the mortgage.
The Telegraph gives an example of comparing a 15% deposit on a £270,000 house compared to a 10% deposit on the same house. The person who puts down 15% will save over £10,000 on a 25-year mortgage.
A mortgage broker can advise borrowers on the best available deals and mortgage protection insurance.