100% Mortgages

Mortgages with a lump sum that you can use during the buying process

In a Nutshell...

• 100% mortgages let you buy a property even if you don't have a deposit.
• The interest rate you'll pay will be higher than for mortgages where you have a deposit, and you'll probably end up paying a higher lending charge.
• When you are in a better financial position you can switch to a mortgage with a lower rate.
• But if house prices were to fall you could find yourself in negative equity.

What is it?

100% mortgages are ideal for those who people who could easily meet the monthly repayments on their mortgage, but haven't had the chance to save up a mortgage. This includes many first and even second-time buyers, and recent divorcees among others. Some lenders will also cover the extra fees such as stamp duty and solicitor's fees, which can be added on to the loan repayments.

Having a 100% mortgage does make you more vulnerable if anything should happen, such as house prices falling or interest rates going up. Because your loan is proportionately larger, you feel it more, and if house prices go down and you're forced to sell, you could be hit by negative equity and find you can't pay back the amount you borrowed.

Costs and charges

Interest rates: Of course all of this doesn't come free, and lenders will offset their extra risk with a number of charges and penalties. In general, you can expect to pay 0.5% to 1% over what you'd pay if you had a deposit. The rate can be either variable or fixed, although many lenders also offer discounted and tracker rates. Fortunately, arrangement fees are normally the same as those for fixed or discounted rates.

Higher lending charge: Many lenders levy a higher lending charge on loans with a loan-to-value of more than 90%. This is simply a fee, and goes towards protecting the lender in case you default on your payments. You have the option of adding the amount to the loan, but you'll pay for this in the form of interest over the course of the loan.

Redemption charges: early redemption charges may not be higher in percentage terms, but because you'll have a larger loan, they may cost more if you try to re-mortgage before the tie-in period is up.

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