Major lender launches no deposit mortgage that is ‘life-changing’ for first-time buyers
A LENDER has launched a new 100% mortgage which would allow people to buy a home without a deposit.
The new deal from April Mortgages is aimed at helping out first-time buyers or home movers who can afford to make monthly mortgage repayments but are struggling to stump up a deposit.
They would need to have a household income of at least £24,000 and be looking to buy or remortgage a house that’s valued at more than £75,000.
The mortgage deal is available on 10 and 15-year fixed terms, so buyers would need to be happy to lock in for a long period of time.
However there are no early repayment charges if you decide to move home or if you repay the mortgage in full.
A 100% mortgage means that you are borrowing the full amount of the property you are buying.
So if the property costs £250,000 then you are borrowing the full £250,000.
Most lenders will insist on a deposit of at least 5 to 10% when you’re applying for a mortgage.
But high rents and the cost of living crisis have made it more difficult for first-time buyers to save up for a deposit – especially as, according to Halifax, the average deposit for a house in the UK is now more than £60,000.
In London this climbs to £100,000.
James Pagan, director of product at April Mortgages, said saving for a deposit is one of the biggest barriers to home ownership.
He said the new mortgage deal is a “responsible option for borrowers with strong financial track records who are excluded by traditional deposit requirements”.
The April Mortgages product allows people to borrow up to 4.49 times their income.
It allows unlimited overpayments at any time, so homeowners can pay off more of their mortgage if they want and build equity in their home.
Few lenders currently offer 100% mortgages, although there is a similar one from Skipton Building Society.
High street lenders such as HSBC and Lloyds had been offering 100% mortgages before the 2008 financial crash, but these were wiped out when lending rules tightened.
It then became more difficult to be approved for a mortgage and major lenders have since required bigger deposits from borrowers.
More recently lenders have been making moves to make things easier for first-time buyers to get on the ladder.
For example, Accord offers a £5,000 deposit mortgage and other lenders have been slashing their affordability rules to allow people to borrow more.
Why you should be cautious with 100% deposit mortgages
These types of mortgages can open doors for people who wouldn’t be able to get on the housing ladder otherwise.
Experts have generally seen the reintroduction of 100% mortgages as a positive thing and this deal from April Mortgages does have rigid lending criteria.
But it’s important to remember this deal won’t be for everyone and they can be seen as quite controversial home loans.
100% mortgages mean you don’t need a deposit – but it also puts buyers at higher risk of negative equity. This is when your mortgage is more than the total value of your home, which can happen if house prices fall.
If you’re in this position it can make it harder to remortgage, sell your home and get competitive rates from lenders.
Typically they also have higher interest rates, making them more expensive.
The general rule is that the smaller your deposit the higher your monthly mortgage repayments will be.
Therefore because you won’t have a deposit, your monthly repayments are likely to be more expensive compared with someone who did put down a deposit.
You will need to be sure you can keep up with the payments and account for any potential financial shocks.
100% mortgages disappeared after the financial crisis in 2008, as they were seen a contributor to the sub-prime housing bubble and subsequent collapse.
Nick Mendes, mortgage technical manager at John Charcol, says the new 100% mortgage comes at a “crucial time for the market”.
“What really stands out is the flexibility built into the product. Removing early repayment charges when moving home or making overpayments gives borrowers freedom and control, which is often missing from traditional longer-term fixes,” he said.
“It is a smart, well-structured product that addresses today’s affordability challenges head-on and will undoubtedly help more people take that first step onto the property ladder with confidence.”
Kate Fuller, business principle at Mortgage Advice Bureau, said: “We haven’t seen 100% mortgages like this since 2008, so to see them finally return really shows how much positivity there is in the property market right now.”