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Would you consider a 100% LTV mortgage?

Would you consider a 100% LTV mortgage?

Category: Mortgages
Author: Lieke Braadbaart
Date: 23/11/2018

A recent YouGov survey suggests that almost half (48%) of Brits think bringing back 100% loan-to-value (LTV) mortgages is a good idea, compared to 32% who think it's a bad idea and 20% who aren't sure. Indeed, given the difficulties many young people face in trying to save up enough for a deposit, any alternative arrangement is sure to sound appealing.

Surprisingly, the YouGov poll saw the youngest age group being the least positive about 100% LTV mortgages, with only 46% of those aged 18-24 thinking it's a good idea compared to 49% among both the 50 to 65-year-olds and the 65-and-over group. This could be due to the lack of information available about this niche product, with currently only nine providers offering a total of 26 100% LTV products.

So what is a 100% LTV mortgage exactly?

To add to the confusion, not all of these mortgages offer the same kind of deal. Long gone are the days when applicants didn't need to offer any sort of guarantee, with many 100% LTV borrowers getting in trouble during the financial crisis as they had no way to remortgage to a better deal.

Nowadays, to get a 100% LTV mortgage you will require a guarantor. Depending on the deal, this guarantor (usually a family member) will need to consent to either having their property (which can in some cases be a buy-to-let property or holiday home) act as collateral, or to set aside a certain amount of savings (essentially making it an offset mortgage) until you've managed to pay off a certain percentage of the loan.

So, while a 100% LTV mortgage means you won't need to worry about a deposit, and you only have to pay the product fees and any moving costs (with stamp duty likely not a problem anymore for any first-time buyer), you will certainly need a generous family member to help you out. Remember with this that if you default on your mortgage repayments for any reason, this means you could lose your loved ones' savings or home in the process, so make sure everyone involved is clear on the risks before signing on the dotted line.

Finding the right deal

Once everyone's on board, it's time to find the best deal for your situation. Obviously you will be restricted by the type of deal depending on whether your guarantor is willing to set aside their savings or use their property as collateral. You'll also want to see how much you'll need to have repaid before the guarantor is no longer needed – some mortgages require 20% to be paid off, after which you should probably consider remortgaging to an 80% LTV mortgage deal, while others require a lesser 15%.

After these caveats are taken into account, it's a question of seeing whether you'd prefer to get a fixed rate or are happy to risk a variable deal for the chance of getting lower repayments. Whatever your choice, you may want to make sure you have some room in your budget to make overpayments, as the sooner you can remortgage to a lower-LTV deal, the lower a rate you are likely to be able to get.

Alternatives

For those first-time buyers to-be who don't have family members who can set aside a 20% deposit into an offset savings account, for instance, there are still options. Earlier this week Moneyfacts.co.uk online editor Leanne Macardle wrote about the importance of considering a Lifetime ISA or Help to Buy ISA for buying that first home. If you're not sure you want to commit to such an account, you should at least make sure you are saving in a Best Buy deal to get a decent interest rate.

Even with just a 5% deposit, you can qualify for first-time buyer mortgages, which should offer better deals (though always check the charts to make sure) and see you get lower monthly repayments. Of course, this then also goes for 90% LTV mortgage deals, which should offer even better value for money. As with any big decision, it's all about weighing up the pros and cons of your various options and finding the one that works for you.

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Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

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