95% and 100% mortgages
95% and 100% mortgages are relatively rare compared to other mortgage types – over recent years the size of the first time buyer deposit that first time buyers have used to purchase a property has instead been about 20% of a property’s value. The mortgage deals available change all time, but the options for 100% mortgages are very limited and there are often only one or two options on the market. Our team of expert advisers can give you personalised information based on your circumstances and let you know what deals might be available to you at the moment. If you’re struggling to get a deposit together a guarantor mortgage could be an option for you.
For most first time buyers, you will usually need to build up a deposit of at least 5% of the value of the property you want to buy. There are a number of 95% mortgage deals available for first time buyers, but tend to come with higher interest rates than those with lower loan to value (the amount you can borrow against the value of the property). 100% mortgages however are less common, and carry a much higher level of risk, as explained below.
What is a 100% mortgage?
With a 100% mortgage you borrow the entire purchase price of the property and put down no deposit. The obvious advantage here is that you don’t need to have any savings in place to buy a home. However, lenders are often very reluctant to cater for 100% mortgages due to the high level of risk involved.
The risks of 100% mortgages
The biggest risk of 100% mortgages is falling house prices – if the value of the property decreases you could be in negative equity – owing the bank more than your property is worth.
Being in negative equity can make it very difficult for you to move house or to remortgage onto another deal. For lenders this means if you ever got into mortgage arrears they would not be able to get all their money back by repossessing the house.
Because of the greater level of risk, interest rates for this type of loan tend to be higher too which means that even if you have enough saved up to put down a deposit lenders may decide based on their affordability checks that you can’t afford the repayments.
100% mortgage options
If you are finding it hard to find a deposit to buy your property then there are potential mortgage products and schemes that may be available to you, enabling you to obtain a 100% mortgage. Our impartial advisers will be able to talk you through the schemes available to you, which could be options such as family offset mortgages or mortgages where a family member acts as a guarantor for the mortgage. Call 0800 316 4071 now or request a call back to find out how we can help.
What is a 95% mortgage?
Basically with a 95% mortgage you borrow 95% of the property’s value and use a 5% deposit to pay for the rest. So, for example, on a house valued at £200,000, you could borrow £190,000 using a 95% mortgage, and would need a deposit of £10,000.
The number of 95% mortgages available as a proportion of the whole mortgage market is still relatively small but they are becoming more common again.
The main benefit of this kind of loan is that you only need a relatively small deposit but there are downsides too. These loans are risky both for you and the lender because the deposit cushion is quite small. If your house dropped in value by more than 5% the mortgage would be worth more than the property, you would then be in negative equity.
Our advisers can help to identify if a 95% mortgage is the right option for you.
Help to Buy and NewBuy
If you are looking for a 95% mortgage you may be interested in government initiatives to help buyers with 5% deposits to get onto the property ladder.
Through the government’s Help to Buy scheme there are two elements. The first element, The Mortgage Guarantee Scheme, works in the same way as any other mortgage works except that under this scheme the Government offers lenders the option to purchase a guarantee on mortgage loans. Because of this support, lenders taking part are able to offer home buyers more high-loan-to-value mortgages (80-95%). You will still be fully responsible for your mortgage repayments. So if you have a 5% deposit, you will need to take out and pay back a 95% mortgage.
The other element of the Help to Buy scheme is the offer of a shared equity loan. The equity loan is interest free for the first five years. From year six a fee of 1.75% is payable on the equity loan, which rises annually by RPI inflation plus 1% of the value of a new build property, valued up to £600,000. This means that borrowers with a deposit of just 5% should be able to buy a new build property and only require a mortgage of 75% of their chosen property’s value.
Another scheme is NewBuy, which aims to make newly built property affordable for first time buyers. The scheme will allow you to buy a new property worth up to £500,000 using a 90% – 95% mortgage.
But there are also plenty of 95% mortgages on the market that aren’t part of the Help to Buy or NewBuy schemes. An adviser will be able to help you find the right mortgage for you.
London Help to Buy
Launching in 2016, London Help to Buy will offer extra help for first-time buyers and home-movers in the capital. Using London Help to Buy, you will be able to apply for an equity loan of up to 40% of the value of a new-build property, rather than the 20% offered elsewhere in the country. The loan will be available for new homes in Greater London priced up to £600,000. As with the standard Help to Buy scheme, you will need to have a deposit of at least 5% of the property’s value and you won’t be able to let it out or use it as a second home.
Impartial Mortgage Advice
No matter how much you are able to save there will be options available to you but these will all depend on your individual circumstances. To discuss what choices are available to help you get on the housing ladder, you can speak to Which? Mortgage Advisers by calling us on 0800 316 4071 – or request a call back.
If you’re buying your first home the Which? Guide Buying a house: first time buyers may be helpful as well.