Over the last decade or more, house prices in the UK have been steadily climbing – and in most cases, wages have not kept pace with the change. Consequently, it’s become difficult for first-time buyers to take that step on the bottom rung of the property ladder.
The biggest barrier for these would-be homeowners is the deposit. If you’re saving just a small amount each month, then saving a few thousand for the deposit might seem like an impossibility. Those with wealthy family members to lend a hand might be able to get the ball rolling; everyone else might end up stuck.
New homes for sale in development areas might mean that the actual supply of housing is rising, but how will the introduction of 100% mortgages impact the housing market?
Enter the 100% mortgage
What if you could borrow the entire asking price for the property, without contributing any money up front? The 100% mortgage is a form of finance that’s being reintroduced in places, partly to combat the problem we’re just identified.
How do they work?
If you have a good enough credit score, and your finances are in good shape, then you might be approved for a mortgage of this kind. You can improve your chances by having a family member available to act as a guarantor. If you have a history of paying your rent on time consistently over a long enough period (say, a year) then you might be able to persuade lenders that you are a safe investment.
How does the Renter’s Reform Bill figure in all this?
Proposed changes to the law in the world of property rental are set to make it more difficult for landlords to evict tenants. Among the most significant changes is the abolition of Section 21 ‘no fault’ evictions. This means that landlords must provide a good reason for evicting tenants.
What does this mean?
In the wake of successive interest rate hikes, the UK government is attempting to push renters toward property ownership. The major advantage of ownership over renting is that you’ll gradually build equity in your home, meaning that after a few decades or less, you’ll actually own something, rather than coming away empty-handed.
When it comes to a deposit-free mortgage, however, there are a number of reasons to be cautious. There’s a substantial risk of your entering into negative equity, which might ultimately lead to your having to give up your home. Approval rates are low, since the risk for lenders is high. What’s more, if you are approved, you might have to pay substantially higher interest.
Despite all of these drawbacks, it might be that 100% mortgages suit your personal circumstances, and that the risks aren’t as salient in your case.
