100% LTV Mortgages: All You Need to Know
Saving up a solid deposit for a property is arguably one of the most trying aspects of being a prospective homeowner. It takes a substantial amount of time and, depending on your financial situation, may seem impossible. If your case is the latter but you’re determined to get onto the property ladder then a 100% LTV (loan to value) mortgage might just be the option for you. Also known as a no deposit mortgage, this mortgage type allows one to purchase a property without putting a deposit down.
Despite the immediately obvious advantage here, 100% LTV mortgages are a rather controversial type of mortgage loan and are generally harder to obtain than their counterparts. For this reason we recommend that you employ an expert mortgage broker to help you navigate through the whole process as well as assist in finding a product that’s tailored to your specific situation.
We at The Mortgage Genie are proud to say that we’ve actualised plenty of our UK clients’ housing dreams by helping them to secure a 100% LTV mortgage. Call us at 033 33 44 33 72 today if you’re interested in joining the many among our success stories.
Of course, it’s still very much worth cluing yourself in on all the information surrounding 100% LTV mortgages. So, we’ve composed this guide to show you everything you need to know as well as answer any possible questions you may have. Throughout we’ll go over:
- What is a 100% LTV mortgage?
- How does a 100% LTV mortgage work?
- What are the types of 100% LTV mortgages?
- Can I get a 100% LTV mortgage?
- What are the advantages and disadvantages of a 100% LTV mortgage?
- Can first-time buyers get a 100% LTV mortgage?
- Alternatives to 100% LTV mortgages
What is a 100% LTV mortgage?
In the simplest terms, a 100% LTV mortgage is a mortgage loan that doesn’t require you to pay a deposit. This is in stark contrast to virtually every other type of LTV mortgage loan. For instance, a 90% LTV mortgage would have you pay 10% of the property’s value upfront with the remaining 90% being paid by a lender. In the former case the lender covers the entire cost of the home.
This mortgage type is ideal for those potential homeowners who can’t afford to put down a hefty deposit, but can keep up with monthly repayments. Naturally, the amount a borrower is eligible to be lent is based on income. To get a general idea, the maximum amount one can be lent is four times their yearly earnings. So, If you make £25,000 a year then you could be offered a mortgage loan for a property worth up to £100,000.
How does a 100% LTV mortgage work?
Since 100% LTV mortgages are a bigger ask from lenders, given that there is an absence of a deposit, this means that they are typically considered as high-risk. The significant direct consequences of this are that mostly all 100% LTV mortgages require a guarantor & come with higher interest rates. This is salient because when the mortgage is secured your repayments are going towards both the capital you borrowed as well as the interest attached to that amount. And since you are borrowing the total expense of the property this results in relatively higher monthly repayments.
It is certainly not easy securing a no deposit mortgage, however. The inherent high-risk nature of such mortgages means that only a select few lenders offer them, and then only to a limited number of people. For example, your chance to be approved is higher if you are an existing borrower.
What are the types of 100% LTV mortgages?
As you now know, a 100% LTV mortgage is generally a guarantor type loan. That is, it requires someone, possibly anyone that is close to you, that also has a good credit rating and is willing to cover mortgage repayments on your behalf if you cannot. As is the case with the lender, this likewise poses a certain degree of risk for the guarantor and so a level of trust is necessary.
There are two ways in which a guarantor can help you to gain approval for a 100% LTV mortgage. It is usually a given that a guarantor is a homeowner themselves, and so the first apparent option is for the guarantor to use their home as security. This means that a legal charge will be registered onto your guarantor’s home and that they’ll have to cover any financial shortcomings on your part based on a combined LTV ratio. The further consequence of this is that the guarantor must meet the minimum requirement of having positive equity on their current property.
The second option is for the guarantor to use their savings as security. Like how their own home would be registered with a legal charge, the same is applied to whatever amount of funds they provide. The total amount comes to between 10 and 20% of the property’s value and will be frozen in a savings account until the mortgage is paid for. Or, on the other hand, if the property is repossessed and sold for less than its initial value where it will then be used to cover the lender’s losses.
Can I get a 100% LTV mortgage?
Although it may seem like the chances of being approved for a 100% LTV mortgage are quite slim, it is very possible. Your first course of action should be to consult a mortgage broker, it’s always advised that you speak to an expert and have them thoroughly assess what your options are before diving head-first.
As well as this, as with every mortgage, you must ensure that you’ve got a record of your employment history along with a year’s worth of bank statements and payslips so as to pass affordability checks. Likewise, a good credit score as opposed to bad credit and an absence of outstanding debts will always work in your favour.
What are the advantages and disadvantages of a 100% LTV mortgage?
The most notable advantage of a 100% LTV mortgage is that you aren’t required to save and put down any money upfront. Meaning, you can get yourself a spot on the property ladder and become a homeowner without the time and stress entailed with accumulating a deposit. Moreover, in the future you could sell the house for more than you initially bought it for, and so make money from it which would then open the opportunity to purchase a more up-market property.
Aside from those disadvantages we have previously mentioned, namely, that you’ll be expected to pay higher interest rates, have a limited choice of lenders, and that you’ll be putting your guarantor at a financial risk. A noteworthy disadvantage is that you’re at a greater risk of slipping into negative equity wherein you would owe more than the worth of the house itself. A change in housing market rates could very easily affect whether you’d be missing out on a substantially more competitive deal. Problems arise here if you decide that you want to remortgage or move house while you’re obliged to pay your lender’s standard variable rate. All of these factors can quickly stack up when they’re thought of in reference to the additional fees and charges too.
Can first-time buyers get a 100% LTV mortgage?
100% LTV mortgages are considered relatively risky, and so are first-time buyers. For this reason, it’s an absolute necessity that you have a guarantor if you are to apply for a no deposit mortgage. And even then, it’s highly unlikely that your situation will allow you to secure such a mortgage.
Considering also the high interest rates, this is perhaps not the ideal mortgage loan type for someone who’s looking to buy their first home. You would have to have a remarkable credit rating and be able to prove that you could keep up with the monthly repayments. In this light, we therefore suggest you consider the alternatives while saving up for a deposit.
Alternatives to 100% LTV mortgages
Luckily, if you’re a first time buyer then there are some great alternatives to 100% LTV mortgages. In April 2021 the government announced their new 95% mortgage guarantee scheme which has drastically helped more people secure a low-deposit mortgage and get onto the property ladder. This scheme is in effect until 31st December 2022. There is also an extensive range of Help to Buy options in addition to this which are well-suited for first-time buyers and previous homeowners alike.
Just by saving a 5% deposit for a 95% LTV mortgage loan would be a considerably more shrewd option for some people depending upon their situation. The direct relative advantage here is that a whole host of high-street banks and reputable lenders offer these types of mortgages including Barclays, HSBC, and Lloyds.
Here at The Mortgage Genie we have a comprehensive understanding on how to get a mortgage and are dedicated to helping people secure loans of all types. We sincerely hope that this post has answered any queries and concerns you may have had surrounding 100% LTV mortgages.
Every day we help more and more people find housing happiness by assisting them in finding the mortgage deal that’s right for them and walking them through each and every step of the process. If you’re in need of a team of expert mortgage brokers then don’t look any further, call us today at 033 33 44 33 72 if you’ve got any further questions or would like us to get you on your way to owning your dream property! And why not see how much you could borrow up to today by using our mortgage calculator?