FTB - 100% question

chicken_5

Hi
I have read the 100% mortgage advice on this forum but I dont think it answered my question so I thought I would post this message. I live in london, and would like to buy a flat here, my boyfriend and I can afford to do this as he earns about 55k and I earn 26k, now whilst I realise we can afford to save for a deposit and should probably be patient, I dont really get what is so wrong with 100% mortgages. If you get 100% mortgage you will be charged higher interest for that loan, but after 2-3years what is stopping you remortgaging to get a lower interest rate? so in the long term would it not be better to do that and then use the money we would have saved for deposit to pay fees and moving costs and debts (yes, we have them too!!)

I am completely missing the point about mortgages?
thanks

PoorDave

100% mortgage means you're in negative equity as soon as the value of the house drops 1p. So if you buy a 200k house with 200k mortgage, if it falls to 190 (only -5%) and you need to sell, you'll only get 190k, and will need to find 10k frm somewhere to pay off mortgage.

With x% deposit, the value can fall by x% ish before this happens.

I think...

It just seems more risky to me

maryjane01

Hi, I am in the same position as you. Living in London, My salary is the same as yours and my partners a bit less than your partners. We are buying on a 100% mortgage. We were going to save upa deposit but have been following house prices in our area (SE London) and it seems prices are still going up just as fast as we can save, so we have decided to buy with a 100% mortgage instead.

We hope to remortgage within 2 years with at least 5% (hopefully 10% if we are lucky!) equity. We plan to get this equity by improvments to the property and relying on the market (I know you can't rely on the market and I don't want to start a debate, but we think the market is still going up, and can survive financially if it doesn't).

If you are buying on a 100% motgage, try to avoid any extra debts eg credit cards and loans. Buy something that you can add value to by doing basic work to it to increase your equity (do not buy new build as you can't do anything to improve it, and a new build can drop in price at least initially, like a new car does because it is not 'new' anymore).

I would also recommend buying under the £250,000 stamp duty limit because the extra stamp duty is negative equity on the property.

I would say you are in a good position, good incomes, no kids (I assume!), it is a risk worth taking. I have no qualms about doing it myself. Get a good mortgage broker or IFA to check the market because 100% mortgages have so many conditions you will probably find you do not fit the criteria for a lot of them. Portmans has a good rate for upto 3 times combined income, we can't go with it because we need 3 1/2 times.

Sarahpuggy

Me and my boyfriend have pretty much decided to go for 100% mortgage now rather than save...

Even if we saved up every penny we have spare and dont have a life for two years, we'd be able to save up about £12 - £14k, and it looks likely, although i know its not guaranteed, that the house prices will rise at a faster rate than we can save and we'll be back to square one...whilst having spent £16800 on rent in the next two years!

yes we'll be able to get a better interest rate after we've saved, but as the OP said..we can remortgage and get a lower interest rate anyway..

I think more and more its becoming the only option for first time buyers with no deposit!

maryjane01

Also, forgot to add, the home improvements will be done with our bonuses, not on credit cards!

Doozergirl

chicken_5 wrote:

If you get 100% mortgage you will be charged higher interest for that loan, but after 2-3years what is stopping you remortgaging to get a lower interest rate?

You're assuming that house prices will have risen to allow you to do that. Forgive me for saying so, but that is a naive view of the market and perhaps why you can't see a problem. Neative equity would, more than likely, completely prevent you from selling up or moving on.

Every penny you save as a deposit, you save another 2p in interest payments, plus the better % deposit gets you a better interest rate on the rest. It also proves to a degree that you can take £100,000s of debt seriously.

Doozergirl

Sarahpuggy wrote:

I think more and more its becoming the only option for first time buyers with no deposit!

A 100% mortgage would only ever be the option for someone with no deposit

Apart from saving, like the majority do.

Jorgan_2

There is nothing 'wrong' with 100% mortgages as long as they suit your requirements. In a rising market they can be a good way for buyers to get on the market, by the time they move in they may well have equity in the property. In a static or dropping market, they are not recommended as the buyer will probably be in negative equity by the time they complete.

The other thing to consider is there will be no deposit on exchange so you may have to exchange & complete on the same day. Not everyone likes doing this.

WHA

You are relying on being lucky. You need to be lucky for the house prices to increase in the short term and you need to be lucky that you don't need to move homes until the house prices have increased.

In the early to mid 1990's it was just normal people like you and I and the other forum members who were caught out by the house price falls.

Normal people found that they needed to move. Perhaps interest rates went up too much to afford. Perhaps one or other partner lost their job. Perhaps one or other's jobs meant them relocating. Perhaps their family grew unexpectedly and they needed a bigger home. Perhaps they needed to move to be closer to a sick parent. There are lots of reasons why you may need to move.

If you have a 100% mortgage and prices aren't rising, you are trapped. To pay off the mortgage, you need to find money from somewhere, meaning credit cards or other loans. You add to that misery the early redemption fees for many mortgages, legal fees, estate agents fees., and you find that you cannot afford to move as there is just no money to do so.

I knew many people who have never recovered their place on the property ladder from the disasters of the early 1990's. They were just normal people trying to live a normal life, but circumstances outside their control (NB not just interest rates) meant that they needed to move and simply couldn't.

Before taking on a 100% mortgage, I would certainly want to be absolutely certain that I could live in the home for at least five years, come what may, otherwise you are playing a very risky game.

chicken_5

Thanks for the advice,
yes I am probably a bit niave about all this needless to say I am the clueless one when it comes to money and mortgages!
I guess its just hard to imagine that property prices will not rise in london because thats all they ever seem to do?
Can you have a 98% mortgage or something like that or does nobody do that

UK007BullDog

Why are 100% bad? Or at least why would I never do it?
Because of the HLC (Higher Lending Charge) the lender will charge you for taking a mortgage of 100%.
The HLC is an insurance YOU pay to the lender, to protect the LENDER in case they have to reposses the property. If they reposses and get less than the £200K (say they get £190K) then the insurance will pay the LENDER the shortfall of £10K.
The INSURANCE will then try to get the money back from YOU!!!!!

So YOU are paying a higher lending charge of anything up to 5% of the loan value. YOU will also be paying for it for the next 25 plus years interest on it as it is added to the loan. YOU will go immidiately into negative equity.

If you can save up 5% deposit there are lenders out there willing to lend that high without a HLC. Or downsize and buy a cheaper property to start off with, and use the savings you have.

Dont forget you have to also pay:
Stampduty
Solicitors fees
Booking fees
Survey fees
Moving fees
Insurances
Flats: Ground rent charge and service charges (buying a flat: do you know how high they are?)

There are plenty of beautiful older buildings out there you can beautify and makes a great starter home to start off with and you are not going to kill yourself doing it. A mortgage on 200K can be up to £2K a month, even with that high wage. Also with wages like you two have you should be able to save for a deposit quite comfortably. (But not wanting to lecture you on how to run your life so no offence taken please, just trying to help from an outside viewpoint, without knowing all of the facts).



Another thing about these 100% mortgages is that only 85 to 90% is actually a mortgage (interest only or repayment) the rest is a secured loan which has to be paid back (interest and capital). What happens if the house prices do not rise and stay stgnant, you are not able to get out of the 90% barrier and by the next time you remortgage you end paying HLC again if changing lenders.

FTB always try to have at least 5 - 10% in cash to put down with another couple of grand to pay for associated costs.