Mortgage recipients eligible for 100% financing: Who qualifies and is it advisable?
Subheading: A Chance at Home Ownership with No Deposit
Get ready to grab the key to your dream home without breaking the bank—a lesser-known lender, April Mortgages, has introduced a 100% mortgage deal. This means you can buy a house without saving a penny for a deposit!
However, interested buyers must keep in mind that they can only borrow up to 4.49 times their annual income[1]. So, if you're earning £40,000 per year, you can hypothetically purchase a home worth £179,600 without an initial investment.
But remember, you'll need to ensure you can manage the mortgage repayments, and there will be additional expenses like legal fees, a surveyor's cost, and stamp duty (if applicable)[2]. Also, April Mortgages requires a minimum income of £24,000 for this offer, and borrowers must fix their mortgage for either 10 or 15 years—much longer than the standard two or five-year mortgage terms[2].
Wondering About that Interest Rate?
The initial interest rate for this mortgage stands at 5.99%. For a £200,000 mortgage repaid over a 25-year term, the monthly payment would be £1,288[2].
Comparatively, a 5% deposit would get you a lower interest rate of 4.79% with Nationwide Building Society, and the monthly repayment would be £1,145[2]. However, you'll need to pay a £999 fee for the five-year deal[2].
April aims to make the higher rate more attractive by offering a rate reduction over time as the loan-to-value decreases[2]. There are no early repayment charges when moving home or repaying the loan with personal funds, but there will be an early repayment charge if you switch to another lender during the fixed term[2].
Think Carefully Before You Leap
While the no-deposit mortgage could be a game-changer for first-time buyers without financial assistance from the "Bank of Mum and Dad," it's essential to think carefully about this move[2]. Savings could help lower your monthly payments and offer greater security over the long run.
Mortgage experts warn against borrowers taking on larger loans, especially as property prices fluctuate[2]. You should consider your ability to meet monthly repayments and the potential risk of negative equity if property prices fall[2].
Alternatives in the Market
There are other small or no-deposit mortgage deals available, but most require a guarantor, some form of collateral security, or a cash deposit held with the lender[4]. For example, Halifax's Family Boost mortgage allows a family member to secure 10% of the home's purchase price as savings for three years, enabling a first-time buyer to get a fixed-rate mortgage with no deposit[4].
Yorkshire Building Society's Accord Mortgages offers a mortgage that can cover up to 99% of the purchase price, requiring a £5,000 deposit and available on properties up to £500,000[4]. This mortgage is available for houses but not flats, and at least one applicant must be a first-time buyer[4].
The new no-deposit offering from April Mortgages eliminates the need for any family help and could encourage other lenders to follow suit[4]. In fact, some mortgage brokers predict that lenders might soon offer more than the purchase price, reminiscent of practices from before the financial crisis[4].
[1, 2, 3, 4]: Enrichment Data[5]: Link for checking the best mortgage rates[6]: News article about declining property prices in Central London[7]: Article about Nationwide changing mortgage rules[8]: Article about the help This is Money can provide with mortgage queries
- While the no-deposit mortgage from April Mortgages could be a significant advantage for some personal-finance situations, it's crucial to remember that a deposit could help lower monthly payments and provide long-term security.
- For first-time home buyers, options such as the Family Boost mortgage from Halifax could be another viable route to home ownership, allowing a family member to secure 10% of the home's purchase price as savings for three years.
- In the realm of business financing, April Mortgages' 100% mortgage deal might create a fascinating shift in the property market, potentially prompting other lenders to introduce similar offers in the future.
