Buy a property without a deposit
The term 100% mortgage has been sullied since the credit crunch and mortgage meltdown. These 'no deposit' deals were partly blamed for the crisis, perfectly summing up the irresponsibility of lenders and, some would argue, borrowers.%VIRTUAL-SkimlinksPromo%
But lenders made a sharp exit from the 100% lending market once the crunch hit and the vast majority still won't touch them with a barge pole.
In fact the Treasury announced this week that it is beginning a consultation about whether or not the new regulator, the Financial Policy Committee (FPC), should have the power to cap mortgage loan-to-value ratios, which would mean that lenders would not be allowed to lend more than a specified proportion of the property's value.
Despite all this, one business claims that it can arrange a mortgage for purchasers with no deposit at all. So is 100% lending back, and should we be worried?
The new 100% deal
The deal is being promoted by master broker Promise Solutions, a firm that arranges deals for mortgage advisers – usually when they have borrower clients that have unusual circumstances or needs.
It says it can arrange an unsecured personal loan for the borrower that can be fully used as a deposit. Then you can get a mortgage for the rest of the balance. In other words, you have borrowed 100% of the property, without needing to put down any money of your own upfront.
This loan for the deposit can be up to £50,000 per person, so up to £100,000 for joint applications. It is repaid over a fixed term of 15 years at an interest rate of 14.9% APR.
However, unlimited overpayments are allowed and there are no early repayment charges.
Of course the repayments will be in addition to the mortgage repayments.
If you wanted to get this deal you would need to visit a broker who would in turn refer you to Promise Solutions for the loan, and then deal with you directly to arrange the mortgage.
Is it any good?
That depends on your perspective. If you want to buy a home, you have an impeccable credit record, can afford the mortgage and loan comfortably, but have no deposit (or equity in your current property), this deal allows you to borrow the deposit and effectively access 100% lending in order to buy.
This could get you onto the housing ladder more quickly than saving for a deposit, or it might be helpful for second steppers with little or no equity in their homes.
Of course, you will face two sets of repayments, on the loan and the mortgage, so you would need to be very confident you could meet both, not just now but when interest rates eventually rise too.
This begs the question; if you can afford a mortgage plus extra repayments on a loan charged at 14.9%, can't you afford to save a deposit? Or if you are in negative equity, overpay your existing mortgage?
Of course, this deal will service a small niche of genuinely creditworthy borrowers who need to buy or move right now. It isn't targeted at the mass market and therefore shouldn't be used as a shortcut to owning your own home, simply because you would rather not wait until you have saved a deposit.
Remember that if you borrow all of the purchase price of your home you have absolutely no protection against negative equity – not a position that most borrowers would relish.
Is it a one-off?
In fact, it is already possible to borrow 100% of a property's value by borrowing the deposit and then taking a mortgage for the remainder, but many of the deals available have been limited to the new-build sector, and you are usually restricted to buying a property from a particular homebuilder.
The only market-wide 100% mortgage launched since the credit crunch is from Aldermore Mortgages. Its Family Guarantee Mortgage comprises a 75% mortgage combined with up to a 25% secured loan, guaranteed by the borrower's parents, step-parents or grandparents.
Realistically, it's still extremely difficult to borrow 100% of a property's value, for good reason. A much better idea is to save up 5% and then you will at least get access to a handful of mortgages. These include Lloyds TSB's Lend a Hand Mortgage, another take on a guarantor deal, where the borrower's parent is required to set aside some savings as collateral against the mortgage.
Or better still, wait until you have saved 10%, or even more, and choose from a much wider range of deals, charged at cheaper rates, and give yourself an equity buffer. It's a whole lot safer.
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