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100% LTV mortgages explained

Leanne Macardle

Leanne Macardle

Editor

At a glance

  • You could buy a home without a deposit if you have a guarantor.
  • The guarantor will need to put up their property or savings as security. These could be at risk if you don't keep up your mortgage payments.
  • 100% LTV mortgages usually have higher interest rates than the lower LTV alternatives.
  • If the property falls in value you could find yourself owing more than it's worth. Make sure to consider the additional upfront costs of buying a home, such as stamp duty and any solicitor's fees.To ensure the affordability of the mortgage for you, and to lessen the risks for your guarantor, lenders require strict eligibility to be met.
  • You should consider potential alternatives such as the Government’s Help to Buy Scheme, which could help you buy a new home with only a 5% deposit, or take a look at shared ownership properties.

What are 100% LTV mortgages?

100% mortgages allow you to borrow the full amount needed to buy your home, without paying a deposit. However, there are strict criteria you need to meet to get accepted for a 100% mortgage, which will vary from lender to lender.

Guarantor mortgages

A guarantor mortgage is a special product that can help those that would otherwise be unable to, to buy or remortgage their house. As with certain 100% LTV mortgages, you will require someone to act as a guarantor. This person will have to put up their property or savings as security (also known as a ‘family offset mortgage’).

To be a guarantor you must:

  • Be a homeowner with at least 30% equity in your home.
  • Have an income high enough to cover the mortgage payments in the event that the borrower cannot or does not pay, while also covering your own outgoings (e.g. your own mortgage, bills and other living costs).
  • Be able to demonstrate your ability to meet credit agreements by having a strong credit record that shows lenders you are a ‘safe bet’.
  • Be willing to show proof that you have taken legal advice, as many lenders require this as part of the application process.
  • Beware that there may also be an age restriction on those willing to act as guarantor.

What are the risks of being a guarantor?

As the guarantor’s home or savings are put up as collateral against the loan, the biggest risk for a guarantor would be losing their home or savings if the main borrower does not meet their obligations. This is why it’s really important that you weigh up your options before agreeing to become a guarantor for someone, whether it’s a trusted family friend or your beloved son or daughter.

Property as security

  • If you are considering acting as guarantor, you do not need to put the entire value of your home up as security, but will be required to put up a percentage of the loan amount, usually around 25%.
  • A legal charge will be registered on your property, usually until a certain percentage of the mortgage has been paid off.
  • If you have a mortgage on your own home, the 100% LTV mortgage lender may impose a maximum combined LTV on your original mortgage and the new charge amount – this is likely to be around 65%.

Savings as security

  • If you are considering acting as guarantor by offering up your savings as collateral, you will likely need to put a certain percentage of the value of the property into a specialist savings account for a set number of years.
  • The savings account is unlikely to offer much or any interest on the amount held in it (though some products do allow it to be used to offset the interest on the borrower’s mortgage).
  • You will be unlikely to be allowed to withdraw your savings during the term of the mortgage.
  • The lender has a legal charge over your savings and could use some or all of the money if the property is repossessed and sells for a loss.

100% LTV mortgages for first-time buyers with no deposit

Can first-time buyers get a 100% mortgage? Yes, there are some mortgages available for first-time buyers, which don’t require the borrower to put up a deposit. There aren’t many, but they do exist!

There are certain advantages to no-deposit mortgages, most prominently the fact that you’d be able to buy your first home without having to hand over a whole lot of cash upfront. Your savings can then be used towards other costs, such as moving, renovations and furniture. For those without savings, getting a mortgage this way also means that you can stop renting and start using those monthly payments to start paying off your mortgage instead. This can make a big difference when rents are higher than mortgage repayments and house prices are still on the rise.

100% mortgages for those in negative or low equity

Some current homeowners may also be able to benefit from a no-deposit mortgage if the value of their home has gone down so much that they now have zero or even negative equity. Without a 100% mortgage, these borrowers would likely be ‘mortgage prisoners’ trapped in a deal with a high interest rate or unable to move home.

Risks of 100% mortgages for the borrower

We’ve covered the risks of becoming a guarantor, but what about the risks associated with these types of mortgage for the borrower? Well, the greatest risk to the borrower is if property prices fall, and, they now owe more than 100% of its value. This is known as being in negative equity.

This is a problem, but only if you are considering remortgaging or moving home (assuming you can keep up the regular monthly repayments). As most lenders will be reluctant to let anyone with negative equity switch to a new deal, you will likely end up on your lender’s standard variable rate. One way to get out of this is to overpay your mortgage. However, not everyone can afford to do this.

It should be noted that if you fail to keep up with your mortgage repayments then your home could be repossessed, and if you have someone acting as guarantor then their savings or home could also be used to help pay off your debt.

The cost of buying a home

If you’re considering taking out a mortgage without using a deposit, you may not have much in the way of savings, so it’s important to understand all the costs associated with buying a home, making sure you can meet them. It is impossible to list all the costs you may have to meet as these are likely to vary, but there are some general things to keep in mind.

Given their status as mortgages for those who don’t have any other option, it’s not surprising to find that 100% mortgage products tend to come with higher interest rates and fees than other mortgage types. Those with a lack of savings should also remember that there will still be other costs to pay upfront, such as stamp duty and conveyancing fees for those moving. There may also be early repayment charges to pay for those remortgaging.

Mortgage calculator

Our mortgage calculator helps you to see how much your mortgage might cost you each month.

Our how much can I borrow calculator gives you a range of how much a lender might consider lending you under a mortgage. This calculation is only an indication only.

Read our How much can I borrow for a mortgage guide to find out more about what can impact your potential sum of borrowing.

Alternatives

While it’s important to compare the few 100% mortgages available to make sure you are getting the best possible deal, it may be a good idea to also look at alternatives.

If you are a homeowner who’s lost some of the value in their home, you may be able to remortgage to a higher-LTV mortgage that is still below 100%. Likewise, first-time buyers without someone to act as their guarantor will have to stump up a 5% deposit but will also be able to get much better deals as a result. Take a look at the best first-time buyer mortgages or use our mortgage search tool to find those deals that most closely fit your situation while still being competitive.

For those with family members that are willing to help their loved ones get on the property ladder in any way possible, there’s another option. That savings pot they are happy to put up as collateral may also be used as a gifted deposit to help get a more competitive deal. Some may even use equity release to help their children get together a decent deposit.

There are a few things to watch out for when gifting a deposit, however. You will need to follow the correct procedure and be able to show that the help is a gift, not a loan. This will likely require the help of a solicitor, so don’t wait too long to ask for advice and arrange things, or your property purchase might get delayed or even entirely derailed.

For those without generous benefactors, there’s always the Help to Buy or Lifetime ISA schemes to consider. These can allow you to save up for that deposit a bit faster thanks to a Government bonus of 25%. They do come with restrictions, though, so remember to read up on them before committing.

What next?

Take a look at the top 95% LTV or 90% LTV mortgages

Pros and cons of 100% LTV mortgage

  • Buy a home without a deposit. If you don't have savings, a 100% LTV mortgage could get you on the property ladder.
  • Potential savings. If you currently pay rent, you'll be able to stop paying this sum, which can be higher than mortgage repayments, and instead invest it into homeownership.
  • You need a guarantor. They'll have to put up their property or savings as security for you to take out this type of mortgage.
  • Higher interest rates and fees. 100% LTV mortgages tend to have higher interest rates than the lower LTV alternatives.
  • Potential for negative equity. If the value of your property falls, you could end up owing more than it's worth.
Moneyfacts tip Leanne Macardle

100% LTV mortgage products are not as numerous as they were before the financial crash of 2008 – However, you can still find products to compare so don’t forget to do your homework when it comes to getting the best deal for your circumstances.

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