What is a 100% mortgage?

The 100% mortgage is a comparatively recent addition to the mortgage industry, offering first time buyers and those with no deposit saved to borrow the whole sum needed to buy a property. If you do not have any savings to with which to pay a deposit, or you need to buy in a hurry, then the 100% mortgage could be your only option. However, there are a number of disadvantages and risks that you need to be aware of before getting a 100% mortgage.

Negative equity

If the housing market falls and the value of your property decreases after you have already paid for it with a 100% mortgage - you will be in what is known as 'negative equity'. This means that in real terms, you owe more than you borrowed. This can be a problem if you want to move house, or if you want to borrow more. You will still have to pay the mortgage back the amount that you bought it for.

High Interest Rate

100% mortgages have higher interest rates than standard mortgages - a reflection of the greater risk that the lender is making by lending you the full amount.

Mortgage Indemnity Guarantee

A Mortgage Indemnity Guarantees is insurance for the lender against the property's potential loss of value - you probably won't be able to avoid this charge with a 100% mortgage. A Mortgage Indemnity Guarante e could add a few thousands of pounds to your overall debt. Normally you can include the cost within your mortgage.

Guarantor

Because the lender has little or no security (without a deposit) they may require you to provide a Guarantor. This means that if you default on payments the Guarantor will be liable to cover them for you.