Are 100% Mortgages Gone for Good?

During the property boom, 100% mortgages were available. With falling house prices and negative equity, first-time buyers are finding that 25% house deposits are normal.

Things were very different just a decade ago. Rising house prices quickly created equity, loan defaults were low and house repossession rates were minimal. In those times, lenders were happy to allow borrowers to take out a 100% mortgage. The world is now a very different place.

One of the biggest obstacles a first-time buyer faces, in terms of getting a foot on the property ladder, is raising a sufficient house deposit. The 100% mortgage helped many first-time buyers get round this problem, but this is no longer an option in the current economic climate.

Falling House Prices and Negative Equity

Falling house prices and the risk of negative equity have led to 100% mortgages being withdrawn from the market. Northern Rock got into massive financial trouble by over-exposing itself to property. They created a mountain of bad debt by offering 125% mortgages to borrowers. Loan default problems set in when the inevitable effects of house price falls and negative equity set in.

According to a report by Standard and Poor, falling house prices are plunging 60,000 people a month into negative equity. Capital Economics, a City consultancy firm, expects up to two million properties to fall into negative equity by 2010. These statistics are indicative that there isn’t likely to be an imminent turn-around in property prices.

The Availability of 100% Mortgages

There aren’t currently any financial institutions providing 100% mortgages without collateral. However, it is possible for a first-time buyer to get a 100% mortgage, provided that they have a guarantor. A guarantor is normally a parent who uses their own home as collateral in the event of loan default.

Although the 100% mortgage is no longer feasible for many first-time buyers, it is still possible to get a 90% mortgage. However, those seeking a 90% LTV can expect to pay a higher APR due to the higher risk of negative equity and loan default.

Most first-time buyers require a house deposit of 25%. However, there are some 90% and 95% deals available for those with good credit and employment prospects. Whether a first-time buyer should be considering buying without a large house deposit is a matter of some conjecture.