What is a 100% mortgage?
A 100% mortgage is a loan for the entire cost of the property you’re buying.
The obvious benefit of a 100% mortgage is that you don’t need to save up any deposit before you buy the house or flat. This can seem appealing, especially if you're a first-time buyer and struggling to save.
But 100% mortgages are risky, and they’re very rare in the current market. When we checked in June, there were only 21 deals available.
Types of 100% mortgage
Currently, the only 100% mortgages on the market are guarantor mortgages. These come in various forms but they do 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.
Traditional guarantor mortgages
With a traditional guarantor mortgage, a family member (usually your parent) agrees to act as a guarantor, enabling you to borrow 100% of the property’s value.
If you can't meet your repayments and your home gets repossessed, your mortgage lender will expect your guarantor to cover the cost of any losses.
For example, if you owed your lender £150,000 but they were only able to recover £125,000 by repossessing your property and selling it, your guarantor would be liable for the remaining £25,000.
Family deposit mortgages
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 held for a fixed period of time after which, as long as you’ve met all your repayments, it will be given back.
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 – ie you’ll pay less interest than you would if the savings weren’t there.
Family link mortgages
The Post Office offers a 'family link mortgage', which it describes as a 100% mortgage.
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 also offer similar products with different names. You should talk to a whole-of-market mortgage adviser to get 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 be trapped in your current mortgage deal unless you could find more money from somewhere else to pay off 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: negative equity
Can I get a 100% mortgage?
Both first-time buyers and people who already own a home can be eligible for 100% mortgages. However, the number of deals is very limited so even if you have a family member who is willing and able to act as your guarantor, there’s no guarantee you’ll be accepted for one.
Before deciding whether to lend to you, the mortgage lender will conduct a thorough analysis of your finances to work out whether you can genuinely afford to make the repayments each month.
Your chances of being given a 100% mortgage will be lower if you have a bad credit score, depending on the reasons why and how low your credit score is. Similarly, if you are in debt, the amount of debt you have compared to your income can affect whether you can get a 100% mortgage.
If you’re self-employed, you may be able to get a 100% mortgage if you can show a consistent track record of earnings for the last two to three years.
You won’t be able to take out a 100% mortgage if you’re buying a shared ownership property.
What if I can't get a 100% mortgage?
If you’re not able to get a 100% mortgage, or don't have a family member who can act as a guarantor, you'll need to put down a deposit of at least 5% of the property’s price and take out a mortgage on the remaining balance.
There’s a wider range of 95% mortgages available, although the interest rates on some of them can be pretty high.
We'd recommend taking professional mortgage advice from a whole-of-market broker such as Which? Mortgage Advisers to ensure you end up with the best deal for your situation. Call 0808 252 7987 or fill out the form at the bottom of the page for a free call back from the friendly team.
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
- As long as you meet all your mortgage repayments, there’s no cost to your guarantor
- 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 will be unable to 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 smaller mortgages
- Negative equity is a significant risk