The 100% Mortgage is Back, but is it Right for You?
Since the 2008 financial crash, first time buyers have been hard pressed to find a 100% mortgage deal as the availability was extremely limited. But in the early part of 2019, the return of the 100% mortgage has been big news. So, what does this mean for the market and, more importantly, how will it affect would-be-first-time buyers and their families?
Assessing the Benefits
There are obvious potential benefits to a 100% mortgage, particularly for those unable to afford a full deposit, and the Bank of Mum and Dad (BoMaD) can play a significant role. For example, one lender says that it will only offer the product if a family member puts a sum of money into one of its savings accounts – a sum that must be equal to 10% of the purchase price, so the mainstream lender provides the mortgage, and BoMaD helps out whilst still being able to have access to their cash savings later along the road.
Advocates of 100% mortgage deals say they have the ability to provide welcome stimulation to a flagging UK property market as well as offering hope to a whole generation of would-be homeowners frustrated by high purchase prices, and high rents which limit their chances of raising sufficient funds for a deposit.
Assessing the Risks
There is a reason why most lenders require a minimum deposit of 5% of a property’s sale value. A 100% mortgage will always carry a significant degree of risk, not least that of negative equity. For example, if a 100% mortgage-holder’s property falls in value, they could quickly find they are in negative equity and that it is almost impossible either to move or to remortgage.
In addition, 100% mortgage repayment rates tend to be much higher and may prove prohibitively costly over the longer term.
Alternative Options – The Family Mortgage
Wellers Law Group works with the Family Building Society to help first-time buyers get that all-important foothold on the property ladder. The building society’s Family Mortgage allows up to 12 family members to contribute using savings, property or a combination of both to provide security to borrowers. It brings these wider assets into the mortgage calculation, helping to reduce the cost for the buyer but not asking family members to hand it over as a gift.
The Family Mortgage is a 95% mortgage product – traditional 95% mortgages can have high interest rates, meaning buyers could end up paying more than they need to. The Family Mortgage can combine the whole family’s financial strength by allowing them to deposit savings and/or use equity in their property as security. This potentially gives access to a better rate of interest, thereby reducing the monthly repayment burden on the buyers.
The mortgage will be secured against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.
To find out more about the Family Mortgage contact the Family Building Society on 03330 140140.
Whatever the type and structure of mortgage deal taken on, parents, grandparents or other family members who are helping to fund a first-time buyer purchase should be aware of the full financial and legal implications of providing support.
When seeking a mortgage deal there are some important questions to ask, including:
- Is the money a gift, loan or security?
- What are the risks involved?
- What will happen if your family member is unable to meet mortgage payments?
- What are the long term implications for BoMaD money as part of the transaction?
- Will the arrangement affect your retirement planning?
- Should you change your Will to account for the arrangement?
Contact Wellers Property Solicitors
If you would like legal advice regarding a BoMaD sponsored property purchase, you can fill out our enquiry form and we will be in touch with you at a time that is convenient for you.
Our team of property solicitors provide legal guidance to clients across London and the South East to help them make clear and sensible decisions regarding family financial transactions.
We have a number of offices in and around London but can help you wherever you are based.