100% Mortgage worth it or not?

DaMatrixBaby

Hello, I need some opinions on whether the 100% mortgage is worth it or not...I am stuck between a rock and a hard place with this one.

For some context I am a 26 year old male that lives in shared professional accommodation currently paying around £550 a month for rent (with bills included) in Yorkshire. I have a good job that pays well around £40,000 but I have been renting every year somewhere new since I left uni. I want to get on the property ladder but it is so difficult to save. I also feel that I am wasting my money by spending so much on private rent that goes towards nothing 😑 I was thinking the 100% mortgage would be a good opportunity as it means then, I can at least put money towards something meaningful AND get on the property ladder...My intentions for a property is to live and potential rent out the other room to friends or another tenant, or potentially look at utilising Airbnb for the spare room when available

However, I am aware of the cons, such as the high interest rates and the risk of negative equity, plus the restrictions on how much you can actually lend. I meet the criteria and after speaking to a mortgage advisor I believe I can buy a property for around £170,000 based off my wage which is decent but not amazing.

My dilemma is that I know a deposit and lower lend rate works out better and is a safer option, but by the time I have saved enough to even put down a deposit I would've paid a significant amount of private rent that could've just gone towards the 100% mortgage...ANY ADVICE??!

MEM62

DaMatrixBaby said:

I have a good job that pays well around £40,000

DaMatrixBaby said:

but it is so difficult to save. 

Circa £2,400 a month coming in after tax and £550 going in rent.  You should be able to save.  What are you doing with the other £1,800 a month?  

RelievedSheff

We took out a 100% mortgage (actually 105% with the Northern Rock Together Mortgage) on the first property we bought and it was a huge mistake. 

Very shortly after we completed on the property in 2007 property prices plummeted and we were in negative equity for a very long time. We were stuck on the lenders SVR when mortgage interest rates were very low because we could not remortgage to a better rate.

It was 13 years stuck in a property that we hated (terrible neighbours which is another story).

We eventually managed to gain enough equity to move in 2019 but it was a long time coming. We were fortunate that we could afford the mortgage repayments and didn't have to move in the 13 years we were stuck in that house. It would have been a different story if we had to move.

Schwarzwald

i think you are asking the wrong qestion.

Can a 100% mortgage be worth it?
i would say YES, in certain circumstances (there are other countries where 100% mortgages are fairly normal).

is a 100% mortgage SENSIBLE in your case?
I would say NO based on the info you shared.

170k mortgage at assume 5% lus another 3% repayment would be nearly 14k per annum, plus bills.

so you would go from 550pcm incl bills to something like 1.4kpcm including bills, more than doubling your fixed lving costs.

if you struggle to save at 550pcm, where does the additional 900pcm come from in your situation?

also, you see to be fairly early in your career. if you want to move companies and/or jobs you might want to retain geographical flexibility which becomes hareder if you own a property.

RHemmings

RelievedSheff said:

We took out a 100% mortgage (actually 105% with the Northern Rock Together Mortgage) on the first property we bought and it was a huge mistake. 

Very shortly after we completed on the property in 2007 property prices plummeted and we were in negative equity for a very long time. We were stuck on the lenders SVR when mortgage interest rates were very low because we could not remortgage to a better rate.

It was 13 years stuck in a property that we hated (terrible neighbours which is another story).

We eventually managed to gain enough equity to move in 2019 but it was a long time coming. We were fortunate that we could afford the mortgage repayments and didn't have to move in the 13 years we were stuck in that house. It would have been a different story if we had to move.

It's so valuable when people share their experiences. And, even more valuable I think when those experiences are things that have gone wrong. 

grumbler

DaMatrixBaby said:

...currently paying around £550 a month for rent (with bills included) 

... I also feel that I am wasting my money by spending so much on private rent that goes towards nothing 😑
...I believe I can buy a property for around £170,000 based off my wage which is decent but not amazing.

Well, let's do some maths...
£170000*4%/12=£567 - the monthly interest (only interest!). And 4% is a very optimistic estimation in your case.
The money you are wasting on rent will be wasted on interest.
Plus the bills that are currently included. Plus maintanance etc.
So, effectively you lose financially and are gambling on house prices rising.

Without gambing, currently you are better off renting and saving, especially as you can get 5%+ interest on your savings (to say nothing of LISA?).

Herzlos

100% mortgages are incredibly hard to get and quite expensive, because they are all risk for the bank and not for you.

If you're on £40k and paying £550/month in rent, where's the rest of your money going? Even a 5 or 10% deposit will make a mortgage much easier to get, plus you need to factor in the solicitors fees, stamp duty etc.

I definitely agree you're better owning than renting, but you're probably going to have to save hard for a year or 2 first.

_Penny_Dreadful

DaMatrixBaby said:

Hello, I need some opinions on whether the 100% mortgage is worth it or not...I am stuck between a rock and a hard place with this one.

For some context I am a 26 year old male that lives in shared professional accommodation currently paying around £550 a month for rent (with bills included) in Yorkshire. I have a good job that pays well around £40,000 but I have been renting every year somewhere new since I left uni. I want to get on the property ladder but it is so difficult to save. I also feel that I am wasting my money by spending so much on private rent that goes towards nothing 😑 I was thinking the 100% mortgage would be a good opportunity as it means then, I can at least put money towards something meaningful AND get on the property ladder...My intentions for a property is to live and potential rent out the other room to friends or another tenant, or potentially look at utilising Airbnb for the spare room when available

However, I am aware of the cons, such as the high interest rates and the risk of negative equity, plus the restrictions on how much you can actually lend. I meet the criteria and after speaking to a mortgage advisor I believe I can buy a property for around £170,000 based off my wage which is decent but not amazing.

My dilemma is that I know a deposit and lower lend rate works out better and is a safer option, but by the time I have saved enough to even put down a deposit I would've paid a significant amount of private rent that could've just gone towards the 100% mortgage...ANY ADVICE??!

It's not easy to get 100% LTV mortgages any more unlike pre-credit crunch and we all know how that ended up.  Many of the 100% LTV mortgages available require a family member to act as a guarantor using their own home or savings as security.  Do you have someone who would be willing to do that for you?

I think Skipton might offer a truly 100% LTV mortgage that does not require a guarantor or family money to be tied up in the transaction.  You do need to show evidence of paying all your rent for 12 months in a row within the last 18 months and they may also want to see proof of payments of household bills which would be tricky since your rent is inclusive of bills.  Skipton calculates two affordabilities for you, one based on your income and one based on your rent payment and mortgage term, whichever gives the lowest affordability is the maximum amount you can borrow.  £550pcm over a 35 year mortgage term and you may be able to borrow £104,319 which is quite a bit less than the £170,000 you're hoping for.

EssexHebridean

RelievedSheff said:

We took out a 100% mortgage (actually 105% with the Northern Rock Together Mortgage) on the first property we bought and it was a huge mistake. 

Very shortly after we completed on the property in 2007 property prices plummeted and we were in negative equity for a very long time. We were stuck on the lenders SVR when mortgage interest rates were very low because we could not remortgage to a better rate.

It was 13 years stuck in a property that we hated (terrible neighbours which is another story).

We eventually managed to gain enough equity to move in 2019 but it was a long time coming. We were fortunate that we could afford the mortgage repayments and didn't have to move in the 13 years we were stuck in that house. It would have been a different story if we had to move.

We're actually on the flipside of this one. Our first mortgage back in 2003 was also a "Together" product - only ours was 110% for various reasons including clearing some debt that MrEH had (And no - I still wouldn't recommend this approach to anyone else - it purely worked for us because we were very cautious about affordability). In spite of being approved to borrow a lot more than we did, we stuck to our guns and stuck with a level of borrowing that we felt we were comfortable with - allowing that this wasn't all that long past the horrific interest rates of the 1990s I think we were both a bit spooked by that possibility. After a few years we started overpaying, and thankfully by the time NR failed and got split into 2 parts, we had done enough on improving our financial history to ensure that our mortgage was one of the very small number that was taken across to the new "Northern Rock" rather than being stuck with NRAM. That of course in turn meant that we didn't end up in that mortgage prisoner state, thankfully. I was told at the time that only about 2% of the entire mortgage portfolio did get taken over to NR - and I still thank my lucky stars we were part of that. 

OP I'd say a zero LTV can work, but only if you really have all your ducks in a row - don't risk over extending yourself at all, do overpay as soon as you can, and make sure that your credit file generally stays squeaky clean - so use a credit card but only for planned spending, and clear in full each month. Don't dip into overdraft. Don't miss payments on anything ever. Personally I'd also be avoiding use of buy now pay later deals as well - as I suspect we're not far away from a scenario where those are seen as a negative on your file. I would also strongly suggest that you get a proper written budget set out for yourself - a current one, and one for how you see your financial picture after you have bought - and see how much slack you think you will have, before you decide whether buying right now is right for you. At the very least, prove to yourself that you can live to that budget, AND that you can begin to build some savings on that budget, before you commit yourself to a mortgage and life as a home owner. 

freesha

£40k a year, rent AND bills £550, but you find it hard to save? Are you sure a mortgage is for you?!

Albermarle

freesha said:

£40k a year, rent AND bills £550, but you find it hard to save? Are you sure a mortgage is for you?!

As above. As a first step I would write down what you are spending each month ( including a monthly estimate for one off costs like holidays), and then see where it can be reduced.
Then from the spare cash created from spending less, have a look at opening one of these and adding the max £4k per tax year to it ( tax year ends April 5th 2024).
Lifetime ISA (LISA): how they work & best buys (moneysavingexpert.com)

Also are there any opportunities for promotion/higher salary where you work, or any opportunities to move ?