100% Mortgages In UK

Mortgage 100% Financing in Britain

100% mortgages offer an opportunity for people with no deposit to get a mortgage. In the past mortgages usually required a minimum deposit of 5%. This means the mortgage lender would lend 95% of the value of the house. The benefit of having a deposit is that the chance of mortgage default was lower. Also it was less likely that borrowers would have negative equity.

With recent rises in UK house prices it has becoming increasingly difficult for first time buyers to save for a deposit. For example with average house prices in Britain approaching £170,000 this means a deposit would be nearly £9,000. This can be difficult to save for, especially with the high value of renting in the UK.

100% mortgages enable a mortgage to be got without necessitating a deposit. The good news is that this makes a mortgage available for more people. The bad news is that the interest rate will usually be 0.5% to 0.75% higher. This is because 100% mortgages are more risky. If UK house prices were to fall those with 100% mortgages would immediately find themselves with negative equity. Those with 100% mortgages usually have to take out Mortgage Protection guarantee. This is an additional charge which insures the lender in case of mortgage default.

If house prices rise then a 100% mortgage can be beneficial because rising house values reduce the % of the mortgage debt.

Will house prices Rise of Fall in the UK?

Experts are mixed.

This is a summary for house prices falling.

  1. House prices have increased faster than earnings. This makes houses increasingly unaffordable. At some time demand will start to fall.
  2. Some of the house price rises are due to speculation. Rising house prices have encouraged people to buy as a financial investment. This speculation can soon swing to the other way as in America.
  3. Interest rates could rise further in the UK. Because UK consumers have a lot of debt a small rise in interest rates would cause a big fall in demand for housing.

 

Summary of why house prices will continue to rise.

  1. There is a chronic shortage of supply in the UK. A recent government study showed that demand for houses could increase by other 5 million by 2010. This number of houses are unlikely to be built. Thus if demand continues to grow stronger than supply house prices will continue to rise.
  2. Increased demand from foreigners. Especially in London there is increased demand from oversees buyers, meaning it doesn’t matter if UK first time buyers cannot afford.
  3. People willing to take out bigger mortgages like 100% and interest only mortgages.
  4. Parents using their wealth gains to help children buy a house.