First-Time Buyers Get New 100% Mortgages: Banks and building societies have begun to ease the affordability requirements and be more innovative in the products they offer.
For many first-time buyers, getting on the housing ladder can feel like an unachievable dream. The good news is that there are more and more mortgage packages where you need a small deposit or no deposit at all.
Metro Bank has become the latest high street lender to offer a program that allows qualifying first-time buyers to borrow up to 100% of the value of a property. Home loans that let consumers borrow 100% are making something of a comeback – they used to be very widespread but were abolished after the 2008 financial crisis.
The Metro bargain comes on the back of a strongly publicised new first-time buyer mortgage from Lloyds that demands a minimum deposit of just £5,000.
Over the last year or so, banks and building societies have started easing their affordability standards and getting more inventive with their mortgage arrangements.
But evaluating these packages is not always clear as they all work slightly differently and eligibility might vary between lenders, explains David Hollingworth at broker L&C Mortgages.
Lloyds Introduced a £5,000 Minimum Deposit Mortgage
Lloyds introduced its mortgage in May with a minimum deposit of £5,000 – a maximum loan-to-value of a whisker over 98 per cent. The agreement is locked in for five years at an interest rate of 5.89% (at time of writing). However it is only accessible on properties valued up to £300,000 meaning it may not be an option for many buyers in expensive places such as London, or for individuals looking at a larger property. The deal is also accessible through mortgage brokers and Halifax.
Lloyds is the biggest lender to breach 95% so far but it is not the first. Santander has a similar program that enables consumers borrow up to 98% of the value of a property. The program is again a fixed rate loan for five years (now 5.49%). But this time you can borrow up to £500,000 and the minimal deposit is £10,000.
Skipton and Yorkshire Building Societies Offer High Loan-to-Value Mortgages
Meanwhile Skipton and Yorkshire building societies have packages which allow consumers to borrow up to 100% and 99% of a property’s value respectively. The Skipton deal is open to existing and recent renters and enables people borrow up to £600,000. It is a five-year fix with rates from 5.55%. The Yorkshire’s arrangement is also a five-year fix with a maximum loan of £495,000 and an APR of 6.44%.
Joint Borrower, Sole Proprietor (JBSP) Mortgages Explained
And there are more agreements popping up on the market to assist people improve their borrowing power with the help of a cousin or friend. This kind of mortgage is called a Joint Borrower, Sole Proprietor (JBSP) loan. They enable borrowers add other people to the mortgage without them being a legal owner of the property. When you apply the lender considers all incomes – meaning you can often borrow more than if you bought a mortgage on your own.
Some packages enable you to add only an immediate family member, such a parent, while others will also accept other relatives and acquaintances. However, under this system everyone is legally responsible for the mortgage payments therefore this is not to be entered into lightly.
“There are lots of lenders that can offer JBSP as an option,” said Hollingworth. Fellow broker Lansdown Financial Services has seen “a significant increase in demand” for JBSP mortgages as house prices continue to climb and affordability has been increasingly stretched, said Doug Miller.
Metro Bank’s New 100% JBSP Mortgage Offer
This new Metro Bank JBSP offer means consumers can borrow more than 95% and up to 100% of the value of a home, as long as they have an immediate family member who can come in as the joint borrower if payments are missed or their financial situation changes. It’s a five-year fixed agreement with a maximum credit size of £675,000 but the rate is high: 6.99%.
This goes to show that you will generally have to pay a higher interest rate in return for not having to put down a deposit, or a very tiny one.
Lower Interest Rates for Buyers with Larger Deposits
For those who can afford a 5% deposit, borrowing 95% of the property value, standard new two- and five-year fixed-rate mortgage packages were available starting at around 5.05% and 4.95% respectively at the time of writing.
If you can find a deposit of 10% or more, rates will be considerably cheaper and you’ll have a greater choice of packages.
Buyers looking for low or no deposit schemes need to think about their alternatives very carefully and may want to talk to a broker.
Some first-time buyers will prefer to keep saving for a deposit so they can get a better rate of interest through a standard arrangement, says Hollingworth.
But he adds: “For those who feel as if they are treading water paying rent, being able to put down as little as £5,000 [or in some cases nothing at all] could make home ownership a much more achievable option for them.”
Frequently Asked Questions (FAQ)
What is a 100% mortgage?
A 100% mortgage allows eligible buyers to borrow the full value of a property without needing a deposit.
Which banks currently offer low or no deposit mortgages?
The article discusses products from Metro Bank, Lloyds, Santander, Skipton Building Society, and Yorkshire Building Society.
What is a JBSP mortgage?
A Joint Borrower, Sole Proprietor (JBSP) mortgage allows additional borrowers to support the mortgage application without becoming legal owners of the property.
Are no-deposit mortgages more expensive?
The article explains that borrowers will generally pay a higher interest rate in exchange for needing little or no deposit.
Is a larger deposit still beneficial?
Yes. According to the article, buyers with deposits of 5% or 10% typically have access to lower interest rates and a wider choice of mortgage products.