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100% Mortgages for First Time Buyers

Being a first-time buyer in the UK mortgage market usually means a tight budget. For some first-time buyers, the only way to afford to buy a property is to combine with friends on a group mortgage . In some cases, however, a 100 per cent mortgage will be more suitable.

What is a 100 per cent mortgage for first-time buyers?

All mortgages are calculated on a loan to value ratio. In most cases, the buyer will put down a deposit, usually expressed as a percentage figure, to secure the loan from the mortgage lender. If the borrower is on a particularly tight budget, it some cases it is possible to get a 100 per cent mortgage. This is a loan for the entire purchase price of the house.

Why doesn't everyone get a 100 per cent mortgage?

Unfortunately, only a relatively small number of mortgage lenders are prepared to offer a 100 per cent mortgage. Your choice of mortgage lender will be limited to a select few, although some are excellent, established companies. Unfortunately, for those first-time buyers looking for a 100 per cent mortgage, lenders may charge a higher interest rate and seek some kind of guarantee.

Are there any other catches for first-time buyers looking for 100 per cent mortgages?

As well as paying a higher interest rate, some mortgage lenders will charge an additional fee to people seeking a mortgage of this type, whether a first-time buyer or not. This is called a Mortgage Indemnity Guarantee (MIG), although this can usually be added to your mortgage, paying interest but still delaying the need for cash output.

What type of mortgage should I look for, fixed or variable?

As a first-time buyer choosing a high loan to value mortgage you should really be seeking to anchor your mortgage repayments with a fixed-rate mortgage loan or a capped-rate mortgage. Tracker mortgages open you up to much greater (and possibly unaffordable) repayments if interest rates rise.

What could go wrong?

If interest rates go up and the property market begins to fall away it could be possible to find yourself in a negative equity situation. This means that you owe more than the house itself is worth. This is a major risk to be considered before choosing a mortgage of this type, whether you are a first-time buyer or a more experienced homeowner.

 

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