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Complete Guide to Mortgages |
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100 % Mortgages
Many first or
second-time buyers who can easily afford mortgage
repayments can't scrape together the money for a deposit,
either because they find it impossible to save or because
they need the money for something else. However, if you're
in this tricky position, you could still buy with a 100%
mortgage.
Once only offered by a handful of lenders, 100% loans are
now widely available. Some lenders cover the price of the
property in its entirety plus a bit more to cover fees
stamp duty, moving costs and so on - all of which can be
added onto the loan repayments.
Costs
and charges
However,
in view of the increased risk being taken on by the
lender, rates and penalties are high.
Interest
rates:
You cannot expect the cheapest rates on a 100% loan so
there's little point in looking at best buy tables and
expecting to get a competitive rate. With low all-round
rates, 100% loans are not bad but you might expect to pay
0.5% or 1 % more than if you had a deposit, often around
5% or 6%. The rate could either be variable or fixed,
although tracker and discount rates are also available, to
help bring down initial costs.
Arrangement
fees:
Fortunately,
arrangement fees are no higher than with many other
mortgage rate deals.
MIGs:
Where you
will be affected by the fees, however, is with the
Mortgage Indemnity Guarantee (MIG) which many lenders -
though not all - charge on loans above 90% loan-to-value
(LTV). This fee is the lender's protection should you
default on the loan - something you are, in theory, more
likely to do the larger the loan is.
As a borrower, you don't get any benefit from MIGs, you
simply have to pay up, and as it is a percentage of the
loan, this can run into thousands of pounds. You can add
the cost to your mortgage but this can be very expensive,
as you will pay interest on it for the life of the
mortgage. It is possible to avoid MIGs if you shop around
but be wary of where else you are paying to compensate for
this.
Redemption
Charges:
Early
redemption charges (ERCs) on a 100% won't necessarily be
any harsher than for standard loans but with a higher loan
they will cost you more if you try to remortgage before
the tie-in period is up.
Affordability:
Having a 100%
mortgage does make you vulnerable to fluctuations in the
housing market. If prices did drop suddenly in your area,
selling it may not generate enough money to repay your
mortgage and you could find yourself in negative equity.
This is only something to be afraid of, however, if you
decide or are forced to sell. As long as you can afford
your mortgage repayments, it doesn't matter what your
house is worth as you are still paying off your long-term
debt.
It is more important to make sure you can cope with a rise
in interest rates than a fall in house prices. But this is
why 100% mortgages are not for people who only want to
stay in that house for a short time.
Advantages
A house
is probably the largest purchase most of us will ever
make and the seriousness of taking on a 100% mortgage
shouldn't be underestimated. However, the benefits for
people who wouldn't be financially able to buy a home in
any other way are manifold:
- You can get onto the property ladder without a
deposit
- You can invest in the market much more quickly than
if you were waiting to save for a deposit
- If you would never be able to find a deposit
otherwise, it makes home ownership possible
- You can keep your savings to meet other costs such
as legal fees or buying furniture for your new home
- When prices are increasing, you stand to be better
off financially and can switch to a better rate.
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Whatever Your Circumstances.....
We Can Help. Apply Today, why delay?
Your home is at risk if you do not keep up repayments on a mortgage or
other loans secured on it. Written quotations available on request
subject to status.
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respected companies.
Mortgage-Plus is a licensed credit broker.
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