100% Mortgages

Due to the recent 'credit crunch' in the UK, the major mortgage lenders, such as banks and building societies, no longer offer one hundred percent mortgages. There are a small number of lenders who will make an exception if you wish to use a 'guarantor' however, which involves designating a person who could keep up the repayments in the event that you are unable.

These mortgages allow you to borrow one hundred percent of the property's selling price. With a standard mortgage, you typically pay twenty-five percent of the property's value straight away and borrow the remaining seventy-five percent, taking out a mortgage. The upfront payment is known as a deposit. On a property worth £125,000, a twenty-five percent deposit is £31,250. Since this is a large sum of money, many first time buyers are unable to afford it and for this reason, the one hundred percent mortgage was a very beneficial type of mortgage, because it gave you the opportunity to buy a house immediately, rather than waiting for years until you could afford the deposit.

If you are able to find a one hundred percent mortgage deal, the interest rate will usually be very high. To protect yourself from increasing interest charges as a result of fluctuations in the economy, you may wish to opt for a fixed or capped rate deal instead. This ensures that your monthly repayment is more easily calculated and managed.

Since you are borrowing the property's total selling price you are normally charged a greater Higher Lending Charge (HLC). Rather than having to pay this fee immediately, it is often added to the amount borrowed. This means you are also charged interest on the fee, increasing the overall cost of your mortgage.

The withdrawal of this type of mortgage by UK mortgage lenders has led to an increasing number of first-time buyers opting for guaranteed mortgages. These mortgages allow your parent or other family member to provide the lender with additional security in the event that you are unable to make repayments. This means that you are more likely to be accepted for a mortgage because the lender is able to recoup their money from your guarantor in the event that you are no longer able to make repayments.


Negative Equity

Negative equity describes the situation where the amount you owe on your mortgage is higher than the value of your property. This is a problem which particularly affects hundred percent mortgages, because the amount you borrow is equal to the initial value of the house. This means if your property's value decreases (even a little), you will owe more on your mortgage than your home is worth. If you cannot meet your repayments and are forced to sell your house, the sale may not fully cover the amount you owe and your debt would not be repaid.