what is a no deposit mortgage or 100% mortgage?
A no deposit Mortgage is when a Mortgage Lender such as a Bank or Building Society, lends you the full purchase price for the home you wish to buy.
types of no deposit mortgage or 100% deposit
You may have seen some Lenders recently advertising that you may be able to get a no deposit Mortgage or a 100% Mortgage with them. When considering the true definition of a 100% Mortgage, this isn’t really the case. This is because although the Lender is lending you 100% of the Property Purchase price. You do still require some form of Security.
This Security will be in the form of a Family member or Friend offering some form of collateral or guarantee. The Lender will usually take hold of some of their Savings or some of the Equity in their Home.
This type of Mortgage is a Family Assist Mortgage (aka Family; Boost, Link, Springboard etc), but is also generally called a Guarantor Mortgage.
If you don’t have a family member or friend which is willing or able to help. You will then need to find some form of deposit yourself. Ways in which you can do that other than by saving, are discussed below under alternatives to Deposits.
savings as security
Where a family member or friend deposits an amount with your Mortgage Lender. This is usually around 10% of the value of the property you are purchasing.
The savings will be held in an account with the Mortgage Lender for a set number of years, usually 3-5 years. Or until you have a set amount of Equity (property value minus your Mortgage) in your home. Usually around 25% of your properties value.
Providing you’ve kept up with your repayments, your Family or Friend will get back their savings, usually with Interest.
Of course, if you fall behind with repayments, they will be at risk of losing some or all of their Savings deposited.
property as security
Your Guarantor uses the equity in their home to help. Your Mortgage Lender will take a legal charge over their property. Which is usually around 25% of the value of the property you are buying.
If the Guarantor currently has a Mortgage of their own on their property. Whether they are able to help will be dependent on how much equity they have on their property.
As your lender will impose a Legal Charge on your Guarantors property. This could mean their home as well as yours could be at risk. Only if, you find yourself in a position where you are unable to keep up with repayments on your Mortgage.
can i get a no deposit mortgage or 100% mortgage
Ultimately you will still need to meet the Lenders affordability and general lending Criteria, as you would with an ordinary Mortgage.
Lenders which Offer these Mortgages will generally require you to have a Good Credit history. Some Light Adverse Credit may be permitted such as a couple of missed payments or where the bad credit is at least 3 years old.
So providing the Lender deems the Mortgage as affordable to you, you have good credit and you and the property you want to purchase fit the Lenders criteria. You should be able to obtain a 100% loan to value Mortgage.
positives of a no deposit mortgage or 100% mortgage
In the traditional sense, 100% Mortgages enable you to purchase your home without an actual deposit.
Is a good alternative for Family or Friends that want to help you but are unwilling or unable to gift you a deposit.
There are quite a few different options these days. Lenders keen to win new business have come up with quite a few different types of No Deposit Mortgage/100% Mortgages. Meaning greater options for you.
risks and disadvantages of a no deposit mortgage or 100% mortgage
You will be reliant on a family member, who will also be liable if you miss repayments. Circumstances can change. And if you fall behind with Repayments on your Mortgage. Your guarantor could be called upon, which will put their Savings and Home at Risk as well as yours. If this happens, this could obviously affect your Relationship with the family member or friend.
Negative equity. Property prices are not guaranteed to continue to rise. As you are borrowing 100% of the properties value, the risk of the value of your Mortgage being more than your Home’s value is high. This obviously isn’t ideal, but could also have negative effects to the Mortgages you will be eligible for in the future and could make you a Mortgage Prisoner. This is where you are unable to change Mortgage Products with your existing lender and are unable to Remortgage to a new one.
Your Family or Friend will not be able to Access the Savings or equity in their home they have used as a Guarantee until your Mortgage lender releases them from the obligation.
100% Mortgage products are generally more expensive than ordinary Mortgage products
Lenders are stricter when it comes to accepting applicants for a 100% Mortgage.
alternatives to a no deposit mortgage
Can’t get a no Deposit Mortgage or save 5% for a deposit, there are alternatives:
Taking out a loan as a deposit – some lenders will allow a loan to be taken out and used as your deposit. The loan repayment will be taken into when the Lender considers whether you can afford the Mortgage. So, speak to an Advisor before taking out the loan, so they can ensure the Lender is going to deem this as an affordable option.
Gifted Deposit – a gifted deposit will usually open up more options than a no deposit Mortgage or Guarantor Mortgage. So, this should be the preferred route to the above if it is an option.
Concessionary Purchase – where a family member or your Landlord sells the property to you at a reduction from the market value of the property. The difference between the market value of the property and the price they sell it to you at, will be your deposit.
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