100% mortgages are back!

Mortgages allowing you to buy a home without a deposit disappeared after the credit crunch, but are making a reappearance.

One of the biggest causes of the financial crisis a couple of years ago was the reckless lending by certain banks and building societies, embodied by the Together range of 125% loan-to-value mortgages from Northern Rock. Many lenders were more than happy to help borrowers buy a property without the need for a deposit, though these deals swiftly disappeared after the crisis truly took grip.

So it may surprise you to hear that 100% loan-to-value mortgages are back...

Tipton & Coseley Building Society

Tipton & Coseley is a small building society in the West Midlands, with just a handful of branches. However, it is clearly doing what it can to ensure locals have a chance of buying in the area, offering a couple of deals which do not require a deposit.

It offers two products on its Family Assisted range, a two-year fixed rate at 6.69%, with an arrangement fee of 0.4% of the advance (which must be added to the loan) and a two-year discounted rate, currently at 4.89%, again with a 0.4% fee.

The mortgage is only available direct, and applications are only accepted from existing members of the society, or close relatives of members. However, a collateral charge is taken out against the value of part of the relative’s property (hence the Family Assisted name) of up to 35%. This is then removed once the loan-to-value on the mortgage falls below 75%.

Marsden Building Society

Another lender offering 100% loan-to-value mortgages is Marsden Building Society, in the form of its Family Offset Deposit Assist Mortgage.

The mortgage tracks at 1.96% below the lender’s SVR (currently 5.95%, giving you a rate of 3.99%) for three years, before following the SVR for the remainder of the mortgage. The fees are pretty minimal, with a £199 booking fee and £299 arrangement fee.

However, the catch is that a relative has to put up at least 20% of the property’s value in a ‘charged offset savings account’.

Lloyds offers a similar style of mortgage with its Lend a Hand deals , up to 95% loan-to-value, where you can even try to get the local authority to put up the savings rather than rely on a family member.

Northern Bank

Northern Bank in Northern Ireland is currently the biggest player in the 100% loan-to-value market, offering 10 different mortgages at this level, available exclusively to existing current account holders, and through their branches only.

These include a lifetime tracker at base rate plus 3.89%, with a fee of £499, and a two-year fixed rate at 4.68% with a fee of £499.

Negative equity mortgages

It’s not a fact that many lenders are particularly keen to publicise, but according to a number of brokers I’ve spoken to, if you’re in negative equity there is a chance of getting a 100% mortgage which you can port over to the new property.

This is one of those areas which demonstrate the value of a mortgage broker, as they will be keenly aware of just how understanding different lenders are in this situation.

Speaking of negative equity...

Of course, the biggest potential danger of buying at a high loan-to-value is that it only takes a small decline in house prices to completely erode any equity you may have built up in the property, leaving you owing more than the property is worth.

And negative equity does make life difficult. While some lenders may be understanding if you desperately need to move, others may not, leaving you trapped in your home, unable to move or remortgage to a cheaper deal.

That’s why it’s vital to buy for the right reasons – namely to secure the home that you want, not just for this year, but for years to come, and to do your sums to ensure you can afford the mortgage even if rates rise significantly.

Buy a property that you are happy to live in for the foreseeable future, and that will meet your changing needs. That way, house price rises or falls are not the end of the world.

20 tremendous high-LTV mortgages

*Mortgage requires relative/local authority to place 20% of property value in savings with Lloyds.

More: The new mortgage that lets you track AND fix | The forgotten costs of an offset mortgage

At lovemoney.com, you can research all the best deals yourself using our online mortgage service, or speak directly to a whole-of-market, fee-free lovemoney.com broker. Call 0800 804 8045 or email mortgages@lovemoney.com for more help.

This article aims to give information, not advice. Always do your own research and/or seek out advice from an FSA-regulated broker (such as one of our brokers here at lovemoney.com), before acting on anything contained in this article. 

Finally, we tend to only give the initial rate of a deal in our articles, but any deal which lasts for a shorter period than your mortgage term may revert to the lender's standard variable rate or a tracker rate when the deal ends. Before you take out a deal, you should always try to find out from your lender what its standard variable rate is and how it will be determined in the future. Make sure you take all this information into account when comparing different deals.

Your home or property may be repossessed if you do not keep up repayments on your mortgage.