Experts warn first time buyers considering 100% mortgages
There are many lenders in the UK that offer 100% mortgages to first time buyers, enabling them to more easily get onto the first rung of the property ladder without the need for any deposit. With no previous property or equity to rely on, first time buyers can really struggle when it comes to raising a deposit for a mortgage, particularly given the high price of properties in the UK – raising a 5% or higher deposit on the average value of a property in the UK can be crippling or even impossible for some first time buyers
The number of 100% mortgage deals on offer has shot up from 92 to 160 over the past six months, with lenders such as Abbey, the Cheltenham and Gloucester, and other smaller lenders offering a number of 100% mortgage products to first time buyers that have no deposit available to put down. Some lenders have started to steer clear of 100% mortgages because of the risks involved, but there are lenders that will happily offer mortgages up to and even exceeding the value of the property.
Industry experts are now warning first time buyers to think very carefully before signing up for a 100% mortgage deal, particularly in light of the current downward trend of house prices. Those that take out a 100% mortgage will be mortgaging themselves to the hilt for the full value of the property that they are purchasing. If property prices then slump, as many are predicting that they will, the buyer will find that they actually owe more on the property than the property is actually worse, which is known as being in negative equity.
Over the past month reports have shown that house prices have already fallen in many areas of the UK, and industry experts are predicting that this will continue through the autumn, with thousands being shaved off the value of the average house prices. For first time buyers that sign up to a 100% mortgage now there could be a shock in store, as they could find themselves falling into negative equity within weeks of taking out such a mortgage.
There are also increased higher lending fees charged on 100% mortgages by many lenders, and this can add to the financial burden, making the situation even worse. The interest rate charged on these mortgages is also generally higher, with some lenders charging up to 1% more interest on a 100% mortgage, than say a 95% or 90% mortgage.
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