100% mortgages – worth the risk?

A 100% mortgage is a mortgage where the loan is for the full value of the property, which means that the borrower does not have to put down any deposit in order to take out the loan. These 100% mortgages are generally available to those that are first time buyers and various other groups, and can make a big difference to affordability for those that cannot afford to purchase a property with a 5% or higher deposit as is required with most traditional mortgages.

Over recent years 100% mortgages have become increasingly popular, and the number of 100% mortgages on offer have increased from around 90 to just over 160, with a select range of lenders offering these mortgages, despite many other lenders shying away from 100% mortgages because of the risks involved. Although 100% mortgage can prove to be a lifeline for those desperate to get onto the property ladder who are unable to raise the funds to pay a deposit of 5% or more, they can also prove very risky for the lender as it means that the borrower is already having to mortgage themselves to the hilt, and this can be viewed as being at increased risk of defaulting on their loan due to affordability problem.

Another thing to consider with 100% mortgages is that if you default on a repayment you could find yourself quickly falling into negative equity. Likewise you could fall into negative equity in the event that house prices fall, which is a situation that has been predicted for the coming months. For those that have recently taken out 100% mortgage this could mean being catapulted into negative equity. When you are in negative equity you actually owe more on your property that the property is worth, which is why those taking out 100% mortgages for the full value of a property could find themselves in negative equity if the value of the property should fall.

You will find that there are many lenders that will refuse to offer 100% mortgages these days, and due to the risks involved many experts advise first time buyer – which is the group to which this type of mortgage is most commonly available – to steer clear of these mortgages. However, for first time buyers, with no previous property and no equity on which to rely for their deposit, the prospect of a 100% mortgage can be all too appealing. For some, this is the only way onto the property ladder, but you should bear in mind that it could also become the reason why you end up off the property ladder if you suddenly find yourself in negative equity.

If you are determined to go ahead with a 100% mortgage, as many first time buyers are, you should make sure that you compare the different lenders that offer this type of mortgage, and that you compare the different mortgage deals on offer. You will find that some lenders offer not just up to 100% of the property value in terms of a mortgage loan, but also additional funds for those that need extra money to carry out imp0rovements etc. Again, this can prove invaluable to some buyers that need the extra cash in order to make the property habitable, but again can also result in finding yourself lumbered with debt and risking negative equity right away.

It is important to compare 100% mortgages from a number of lenders if this is the type of loan that you intend to opt for. You can do this with ease, convenience, and speed by using the Internet, where you will find a range of lenders that offer a variety of 100% loans. Interest rates on these loans can vary from one lender to another, so you need to make sure that you look at the different rates in order to determine which offers the best value for money. You should also remember that if you can raise a deposit towards your property then you should always try to do so, as this will at least give you some level of equity in your property, even as a first time buyer.

Once you have found a suitable 100% mortgage for your needs you can usually make your application online too, and this can make things a little easier and more convenient. This type of mortgage is usually only available to certain groups, such as first time buyers and those coming out of a relationship that cannot afford to buy on their own on the open market as a result of being unable to raise the necessary deposit. You should make sure that you can afford to make repayments on the 100% mortgage too, as failure to keep up with repayments can result in the loss of your home.