Non Standard Mortgages - First Time Buyer
100 Percent Mortgages
There are quite a large number of people who are unable
to raise a deposit to buy a property. You may have no existing
equity in a property, no savings and little prospect of
any in the near future, you may be using up all you do have
on the other costs of the move, or you could perhaps be
saving what you have so that you can fix up your new home
when you do buy it. But if this or any of the many other
reasons do apply to you, it does not necessarily mean that
the mortgage market is closed for business, thanks to the
existence of 100 percent mortgages that are aimed at people
in exactly such circumstances.
One hundred percent loans can usually be offered with
many of the other types of mortgage rate - you are often
given a choice of fixed, capped or discounted mortgages.
Few people who can actually afford a deposit would choose
a one hundred percent loan, as there are quite a number
of downsides to them, but for those who may otherwise struggle
to start playing the property game, they can provide a helpful
stepping stone to get you started.
Advantages
The obvious advantages of 100 percent mortgages are
fairly obvious - you have no need to raise a deposit, and
any money you do already have can be saved for the move
or for the new home.
Some 100 percent mortgages allow you to add your legal
fees, surveyor's fees and any other up-front costs to the
loan. This further reduces the amount of money you need
up-front in order to complete the transaction.
If you know that you can afford the repayments because
you are already paying out a similar amount in rent but
don't have sufficient spare cash to save over and above
this level, then a 100% loan could be for you. 100% mortgages
allow you to get started owning a home and it is quite possible
that your monthly outgoings will actually be lower than
if you were renting.
Some lenders will take into account changes in the value
of your property when calculating your ongoing repayments.
So if prices in your area rise sharply, or the value of
your home is driven up by improvements that you carry out,
some lenders may be willing to reassess the property value,
with the possible benefit that you have sufficient equity
in your home to drop to a lower loan-to-value price banding
and move to a more competitive rate of interest. You would
need to check with the lender to find out whether or not
this is a policy that they employ.
Disadvantages
The interest rate with a one hundred percent loan are almost
certain not to be quite as competitive as rates for people
who are borrowing a smaller portion of the value of their
home.
You will usually have to pay a Mortgage Indemnity Guarantee
fee for not offering a deposit. This can also be added to
your loan. The lender is usually quite happy for you to
add this sort of fee to the loan for two reasons:
MIG fees are usually charged as a portion of the loan rather
than a fixed fee. Despite the additional interest charges
that adding the fee to you loan will generate, many first
time buyers simply don't have a choice, since this fee can
often come to several thousand pounds, It is possible to
find lenders that will loan you 100% without charging you
a MIG, but it is rare and you are likely to be charged a
higher rate of interest to compensate. MIG-free 100% loans
are generally found amongst those lenders that base their
decision on your ability to meet the monthly mortgage repayments,
rather than those that use fixed rigid multiples.
With 100 percent loans, you are sort of being hit with
an expensive triple whammy. You are likely to be charged
a slightly higher rate of interest due to the size of the
loan, and the interest is being charged on a larger sum
of money than if you had used a deposit to buy the same
property. You are also likely to be charged a MIG fee, which
is likely to be added to the loan - all of which means a
pretty sizeable amount of interest in total when compared
to somebody borrowing the same amount with a deposit at
a lower loan to value.
Lending criteria varies depending on the lender and also
on your personal financial circumstances, but lenders are
usually a little more rigid when lending the full value
of the property. Expect to be able to borrow from three
to three and a half times your salary, though you may get
up to four times your income if you shop around. Some lenders
will also take your guaranteed bonuses into account. Joint
buyers can usually borrow up to two and a half times their
combined salaries.
First time buyers with 100% mortgages are the borrower
group that is most vulnerable to market fluctuations. If
you have a 100% mortgage, you are on the brink of negative
equity right from the start of your term, so if prices did
drop sharply and suddenly in your area, you may find that
selling your property would not generate sufficient money
to repay the loan. You also need to bear in mind what would
happen to your repayments if interest rates jump sharply.
It is important to do the calculations and see what the
impact would be.
