What is a 100% mortgage?
A 100% mortgage is a loan for the entire cost of the property you’re buying, meaning you don’t have to put in any deposit of your own.
This can sound appealing to first-time buyers who are struggling to save. But 100% mortgages are risky, and also very rare in the current market. When we checked in January 2019, there were only 41 deals available.
Video: 100% mortgages explained
Our 90-second video explains the basics of 100% mortgages, how they work and who might be eligible to get one.
Types of 100% mortgage
Currently, the only 100% mortgages on the market are guarantor mortgages. These come in various forms but all rely on you having a family member who’s willing and able to help you out.
We’ve explained the basics of each type of 100% mortgage below, but to learn about them in detail you can visit our full guide to guarantor mortgages.
Family deposit mortgages
With a family deposit mortgage, your family can offer their savings or their property (or both) as security for your mortgage.
Savings as security
Here, your family member deposits cash - typically between 10% and 20% of your property's value - in a special savings account, and the money is held as security against the 100% mortgage.
Your relative will earn interest on their savings during this time, though the rate might not be as competitive as what they’d get from a regular savings account.
The cash is typically held until either:
- the amount you still owe on your mortgage falls below a certain percentage of the property's value, typically 75% or 80%;
- a set number of years have passed, as long as you've made your mortgage payments on time; or
- you've repaid the loan in full.
Property as security
Instead of savings, your family member can provide a charge over their own home - typically between 20% and 25% of the value of the property you're buying - as security against your mortgage.
Family offset mortgages
These work in a similar way to family deposit mortgages.
The main difference is that your family member won’t earn interest on their savings.
The upside is that, when it comes to your own monthly mortgage payments, you’ll only pay interest on the difference between the total value of the mortgage and the amount of savings held in the linked account – so you’ll pay less interest than if the savings weren’t there.
Family link mortgages
The Post Office offers a 'family link mortgage', which is similar to a 100% mortgage as you don't need to put down a deposit.
However, it actually combines a 90% mortgage with a 10% loan, which is raised in the form of a mortgage against your relative's home. They will need to be mortgage-free to qualify.
Other lenders offer similar products with different names. You should talk to a whole-of-market mortgage broker for a full understanding of all the deals currently out there.
The risk of negative equity
The biggest risk with a 100% mortgage is that you could fall into negative equity, which means owing more to your mortgage lender than your property is worth.
For example, if you used a 100% mortgage to buy a flat worth £200,000 but its value dropped to £185,000, you'd still owe your mortgage lender £200,000 minus anything you'd already paid off.
This could cause you problems if you needed to move home or remortgage. You could end up trapped in your original mortgage deal paying a high standard variable rate unless you could find money from elsewhere to cover the shortfall.
As you pay off more of your mortgage and own more of the equity, negative equity becomes less of a concern - but in the first few years of a 100% mortgage, the risk is significant.
- Find out more: what to do if your property has negative equity
Can I get a 100% mortgage?
First-time buyers, home movers and homeowners who are remortgaging can all be eligible for 100% mortgages.
However, the number of deals is very limited so even if you have a family member who can act as your guarantor, there’s no guarantee you’ll be offered a 100% mortgage.
Before deciding whether to lend to you, the mortgage lender will scrutinise your finances to work out whether you can genuinely afford to make the repayments each month.
You're less likely to get approved for a 100% mortgage if:
- You have a bad credit score: having no deposit and a poor credit history will raise red flags for lenders. You might be better off looking at bad credit mortgages.
- You have debt: even if your credit score is OK, being committed to paying off debt each month may impact your ability to also pay your mortgage.
Find out more: improving your mortgage chances
Pros and cons of 100% mortgages
- Enables you to buy a home without a deposit
- Lenders are developing more types of 100% mortgages, meaning greater flexibility depending on your situation
- Relies on there being a family member who can act as a guarantor
- With some deals the guarantor’s own home may be at risk
- With other deals the guarantor temporarily cannot access their savings, and may not earn interest on the balance
- It’s difficult to get approved for a 100% mortgage
- Interest rates on 100% mortgages are typically higher than on mortgages with a lower loan-to-value ratio (LTV)
- Negative equity is a significant risk
What to do if you can't get a 100% mortgage
If you’re not able to get a 100% mortgage or you decide that they're just not right for you, you'll need to save a deposit of at least 5%.
Our guide to saving for a mortgage deposit is packed with helpful advice on how to build up your savings pot and eventually buy a home.