There are now a number of mortgages allowing borrowers to purchase a home with no deposit. But these 100% deals do have some significant catches to bear in mind.
Bath Building Society has just released a mortgage that adds to the small number that let you borrow 100% – and even up to 120% – of the value of your property.
Thanks to our recent economic troubles, I think most people are now at least a little aware of the dangers of borrowing the full price of your home without paying for any of it from savings. Mortgage lenders have also become far more wary about the amount they lend, who they lend it to and under which circumstances.
That's why it might surprise you to know there are still quite a few options on the table for 100% plus mortgages, and the list has actually been growing since at least summer 2011.
I'm going to take a look at the new mortgage from Bath and then see how it compares to nine other mortgages that don't require a deposit.
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The newest 100% mortgage
Bath Building Society's new 100% repayment mortgage fixes your interest rate for three years at 5.29%. You pay two fees that add up to £175, plus an arrangement fee on top. The arrangement fee is 0.5%, with a minimum of £600, which means any mortgage over £120,000 will cost more than the minimum. A mortgage of this size would cost around £720pm.
You can overpay up to 20% of the outstanding loan each year without penalty.
The mortgage is aimed at first-time buyers, but the building society will consider home movers as well.
You need to earn a minimum £25,000 or £40,000 for a joint mortgage, and you can borrow 4-4.25 times your after-tax incomes. Bath doesn't credit score, but looks at individual circumstances to decide whether to lend.
Dick Jenkins, head of Bath Building Society, said: “Let me be clear this is not a return to the indiscriminate 100% lending that was in vogue on the eve of the credit crunch. We will be assessing all applicants carefully to make sure the deal is right for them and that they are comfortable with how the mortgage works.”
The catches
These risky mortgages come with more catches than most. For the Bath one, you need your parents as guarantors, which is why it's called the Parental Assistance Mortgage.
A charge will be placed on your parents' home up to 25% of the value of your new home. This means that your parents will either have to help you pay your mortgage if you hit trouble, or the lender could take a chunk of their home when they sell it. Worse, in some circumstances Bath could force your parents to sell their home as well as yours, if both you and they cannot afford to pay your mortgage.
Before you're allowed the mortgage, parents must take independent legal advice and will need to prove they have done so, which will all add to the costs.
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More options
For the Bath mortgage, you need to be in the South West of England or within 100 miles of Bath, and you have to work within a 30 mile radius of the property. That's pretty restrictive, so here's a table comparing the Bath mortgage to nine similar ones:
Top 10 100%-120% mortgages
|
Mortgage description |
Interest rate |
Fees |
Some key terms |
|
Halifax high-value existing-customer remortgage up to 120% repayment/interest only (through brokers) |
4.24% fixed for five years |
£1,000 |
Minimum mortgage a lofty £300,000. For those in negative equity. Existing deal must be coming to an end and is based on the total mortgage debt. No leaseholds. |
|
Halifax existing customer remortgage up to 120% repayment/interest only |
4.49% fixed for five years |
£0 |
For those in negative equity. Existing deal must be coming to an end and is based on the total mortgage debt. No leaseholds. |
|
Lloyds TSB existing customer remortgage up to 120% |
4.49% fixed for five years |
£0 |
For those in negative equity. Existing deal must be coming to an end and is based on the total mortgage debt. No leaseholds. |
|
Bank of Scotland three-year existing customer remortgage up to 120% |
4.59% fixed for three years |
£0 |
For those in negative equity. |
|
Bank of Scotland five-year existing customer remortgage up to 120% |
4.94%-6.59% fixed for five years |
£0 |
For those in negative equity. |
|
Bath Building Society first-time buyer repayment mortgage up to 100%. |
5.29% fixed for three years |
£775+ |
See above. |
|
Aldermore 1st or 2nd time buyer repayment mortgage up to 100% |
5.48% fixed for two or 3 years |
£1,300 |
England and Wales. Excludes right-to-buy, self-build and non-standard construction properties, and new-build, newly-converted, freehold or ex-local authority flats. Two guarantors, one must be a parent, step-parent or grandparent: 25% charge on guarantors' home. High legal costs (£575+) |
|
Norwich & Peterborough existing customer remortgage up to 100% |
5.49% fixed for two years |
£0 |
England and Wales. Up to 10%pa (maximum £10,000pa) overpayments allowed. No self build or conversions. |
|
Royal Bank of Scotland existing customer remortgage up to 100% |
6.19% fixed for two years |
£1,000 |
£100 cashback for switching online. Can overpay 10% of outstanding balance each year. |
|
NatWest existing customer remortgage up to 100% |
6.49% fixed for two years |
£0 |
£100 cashback for switching online. Can overpay 10% of outstanding balance each year. |
I called the table a “top 10” but this is pretty much all the mortgages of this type that you can get.
Firstly, notice that the rates tend to be lower the longer the fix is, with five-year deals tending to be lower than two-year deals. Also, the greater the maximum loan the better the deal, with 120% mortgages, astoundingly, offering better interest rates than 100% deals (although the fees are a mixed bag).
Lloyds TSB's mortgage in the table is a best guess based on the latest information I could find, but Lloyds doesn't publishes any information about these mortgages. It will discuss terms with its existing customers over the telephone.
Cheltenham & Gloucester, Lloyds and Halifax have some of the same deals, which is unsurprising since they're all part of the same banking group. However, Bank of Scotland, which is also in the group, has different deals. All of them, however, are for existing customers in negative equity (i.e. their properties are now worth less than their mortgages) who want to remortgage at the end of their deals.
These deals might not seem attractive at this point in time, with the default rate after customers' previous deals end currently being between 2.5% and 4%, but they're still cheap in historical terms and, since they're all fixed, they give you safety from the lender increasing its rates.
As mentioned earlier, Bath Building Society's deal is for first-time buyers, although it will consider home movers as well.
Aldermore is the only lender I could find that really targets its 100% mortgage at second-time buyers, but first-time buyers are equally welcome. You need guarantors on similar terms to the Bath Building Society mortgage.
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At Lovemoney, you can research all the best deals yourself using our online mortgage service, or speak directly to a whole-of-market, fee-free Lovemoney 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), 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.
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