Dreaming to get onto the property ladder but the cost of living wiping out your savings? Can’t afford to save for a deposit while renting? These are all common reasons why many get caught renting for life; however a no deposit mortgage (also known as a 100% mortgage) could cause you more trouble than relief.
With the average UK rent hitting an all-time high of £1,190 PCM, and the majority of lenders requiring a minimum of 5 to 10% deposit to secure a mortgage, thousands of First Time Buyers find themselves in a sickening catch 22: paying rent, which is more often than not more expensive than the mortgage repayment, and unable to save for a deposit to secure a mortgage.
No deposit mortgages have become a thing of the past since the 2008 financial crisis with banks taking a more cautious approach to lending. Prior to this, it was typical for lenders to approve mortgages without a deposit or even allow future homeowners to borrow more money than the property was worth. Skipton Building Society is one of the first lenders to reintroduce 100% mortgages, purely aimed at First Time Buyers looking to get onto the property ladder, by simply providing them with evidence that they have constantly made their rental payment on time. However in the same breath, Halifax reported that the average UK house prices have fallen….
It is like the past hasn’t taught us a lesson! It is the wrong time with many lenders and property experts suggesting house prices could drop as much as 10% over the next year, sending these new homeowners straight into negative equity. What happens when they come to sell the property or are required to remortgage?
At times of instability and uncertainty, it is concerning to see a return of 100% mortgages and consumers making decisions which could result in extreme financial hardship, particular given interest rates for such a mortgage is also around 5.49% for a 5 year fixed term mortgage.