100% mortgages – Current State of 100% Mortgages
100% Mortgages – now you see them, now you don’t.
In the lead up to the infamous credit crunch lenders were falling over themselves to offer borrowers 100% mortgages and in some cases 125%, and these deals were often offered to first time buyers.. Those borrowers may even have had a poor credit history.
100% mortgages are typically available for those borrowers who cannot afford a deposit. Because of the highest loan-to-value these deals are they are considerably more expensive and the interest rate will much higher. Along with a higher interest rate there may be higher lending charges (HLC) which in most cases is added to the loan. So therefore these charges will also incur interest.
The typical type of mortgage deal being offered could be a fixed rate, interest-only, discounted or tracker mortgage.
The benefits of a 100% mortgage are that of course a deposit is not required, and a buyer can go for a property as soon as they find the house they like. A potential buyer may be renting at a high cost, so a 100% mortgage even with its higher fees and interest rate may be the more viable financial option.
However, as of June 2009 there are hardly any 100% mortgages being offered by lenders and 125% mortgages are pretty much extinct. This is due to the credit crunch and these deals are now considered by most lenders as too risky, a policy which is also backed up by the current fall in house prices.
The prime minister Gordon Brown has made a call for responsible mortgage lending and the Financial Services Authority (FSA) will be approached to rule on ending 100% mortgages or higher, along with restricting the income multiples used to calculate the loan value. Although first time buyers are already facing a tough time getting on the housing ladder these measures will enforce prudent and responsible lending; and help restrict a new boom and reduce the chances of another housing market crash.
Even though 100% mortgages are on the verge of extinction there are a small number available so they are worth investigating and considering if personal circumstances mean raising a deposit is not possible. These deals can be very risky as a further fall in house prices can lead to negative equity, and future interest rate increases can make repayments very difficult. In this scenario and if the FSA enforce the proposed rules remortgaging may just not be an option.
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