100% mortgages have hit the headlines recently with the launch of Lloyds Bank’s new ‘Lend a Hand’ scheme, but can homebuyers really purchase a property with no deposit?The Lloyds deal, which is only available direct from the bank, is aimed at first-time buyers who are struggling to save a deposit. To qualify, however, they’ll need help from the Bank of Mum and Dad, as a family member must agree to put down 10% of the purchase price of the property in cash into a three-year fixed term savings account. This acts as security for the mortgage. When the three-year term finishes, the family member will get their savings back with interest, provided the property owner has made all their mortgage repayments over this period. Here, we explain everything you need to know about 100% mortgages.
Is Lloyds the only lender which allows you to buy without a deposit?
No, there are several other lenders who are prepared to offer mortgages to buyers who can’t afford to put down a deposit, but who have financial support from their families. The Barclays Family Springboard mortgage, for example, works in a similar way to the Lloyds deal in that homebuyers can take out a mortgage without putting down a deposit, provided their parents agree to keep 10% of the property purchase price in a savings account for three years. Again, the money will be returned to them at this point with interest, as long as all mortgage payments have been made on time. Unlike the Lloyds deal, the Springboard mortgage is not exclusively aimed at first-time buyers, so it can be used by those trying to move up the property ladder too. Other lenders offering mortgage options up to 100% (provided family members use savings or equity from their home as collateral) include Aldermore, Loughborough Building Society and Buckinghamshire Building Society.
Who might these deals work for?
These types of deal mainly tend to benefit first-time buyers who are finding it impossible to save a deposit, and can help them to achieve home ownership earlier. They are also a useful option for those parents who want to help their children get onto the property ladder, but perhaps don’t want to hand over their savings for good. As the money will be returned after three years with interest, parents with more than one child can then potentially re-use their savings to help them out too.
Are there any downsides?
The biggest potential downside of this kind of mortgage is that if house prices fall and the property needs to be sold homeowners could find themselves stuck in a position of negative equity. This means that they would owe more than the property is worth, making it impossible to sell unless the difference between the value of the property and the mortgage can be repaid. Parents must also remember that their cash could ultimately be at risk if the buyer fails to meet their mortgage payments.Do any lenders offer 100% mortgages which don’t require financial support from family?
Pure 100% mortgages are not available, although most lenders will allow you to borrow up to 95% of the property value. Many of these deals come with incentives, such as a free valuation or cashback. Remember that the more you can afford to save as a deposit, the greater the range of mortgage options you’ll have available to you. Rates also become much more competitive the bigger the deposit you have, so for example, having a 10% deposit rather than a 5% deposit would mean cheaper monthly payments.
