The return of 100% mortgages has been touted as a way to help beleaguered first-time buyers get onto the property ladder, and one of the most visible deals has just got cheaper as Barclays has cut rates on its 100% guarantor mortgage.
The bank's 100% Family Springboard mortgage, which does not require the borrower to put down a deposit, now has a reduced rate of 2.95% from 3% previously. This makes it cheaper than high-street rival Lloyds Bank, .
It also makes the deal cheaper than many 95% loan-to-value (LTV) mortgages, which require buyers to put down a deposit of at least 5%.
Mortgages allowing you to borrow 100% of a property's value were deemed to be a major contributor to the property crisis of 2008, but more than a decade later, are they worth considering?
Which? examines the 100% mortgage market, and explains the benefits and risks of the controversial loans, which have seen a resurgence this year.
A 100% mortgage is a loan for the entire purchase price of a property, which does not require the borrower to pay a deposit.
However, they would still potentially have to pay for(although there's none charged to first-time buyers purchasing properties worth up to £300,000), as well as mortgage and legal fees, and the cost of a .
The Building Societies Association (BSA) recently said that lenders should consider bringing back the risky loans, which played a part in the 2008 financial crash, to prevent buyers relying on their parents.
The Family Springboard mortgage is a three-year fixed-rate deal that allows you to borrow 100% of a property's value.
But it requires a 10% deposit from the borrower's parents, which will be returned after three years, provided all the mortgage payments are made on time.
Borrowers must be 18 and buying a home worth up to £500,000.
Here are the two Family Springboard deals:
|Product||Initial rate||Follow on rate||Loan-to-value (LTV)||APRC|
|3 year fixed Family Springboard||2.75%||3.24%||95%||3.2%|
|3 year fixed Family Springboard||2.95%||3.24%||100%||3.2%|
Typically, 100% mortgages are only available if you have a guarantor, usually a parent who will cover the mortgage if you miss a payment.
We've broken down the different types of 100% mortgage in the table below.
|Type of guarantor mortgage||How it works|
|Family deposit mortgage||A family member deposits cash (10-20% of the property's value) in a special savings account, where the money is held as security against a 100% mortgage.|
|Family offsetmortgage||A family member deposits cash into a savings account (as above), but your mortgage interest will be calculated on the total mortgage minus the amount that's held in the savings account - meaning cheaper repayments.|
|Family link mortgage||Combines a 90% mortgage on the first-time buyer's home with a 10% mortgage on the family member's home.|
|Joint mortgage||The family member and first-time buyer take out the mortgage together and are both named on the mortgage agreement, meaning that both incomes are taken into account and you can potentially borrow more.|
|Joint borrower, sole proprietormortgage (JBSP)||As above, but only the first-time buyer is named on the property deeds.|
The main advantage of a 100% mortgage is that you don't have to go through the struggle of pulling together a deposit for a mortgage.
And as long as you meet all your mortgage repayments, there's no cost to the guarantor. They could also be a good option for those with low incomes, or with a bad credit history.
But a lot of therisk sits with the guarantor, who in some cases must put up their own home as security to back the person taking out the 100% mortgage. This means that the guarantor's home could be at risk if the borrower fails to make payments.
Another significant drawback is , where you owe more on your mortgage than the property is worth. With a 100% mortgage, a dip in the property price will immediately mean your mortgage is higher than the value of your home. This is why many lenders are also reluctant to offer 100% deals.
In the family offset mortgage, the family member won't earn any interest on their savings, while on a joint mortgage the family member will need to pay stamp duty at the additional rate and face capital gains tax bills.