Prior to the 2008 financial crash, a 100 percent mortgage was common place for securing finance on a single asset. However, they became too risky for banks because if the market dipped, the borrower would be in negative equity. Today, there are a number of ways to raise 100 percent of the funds in a much more secure way for both the client and the lender.
Firstly, it is possible to raise a deposit by remortgaging a current property to a Let to Buy mortgage, securing money to put towards the new home. The buyer would then arrange a mortgage against the second property in order to bridge the gap – the rental income from the first property will help with the affordability checks for this. Despite the new property being the buyer’s primary residence, they would be liable to pay the extra 3 percent stamp duty but it is often possible to raise an additional amount on the current property to cover this cost so the buyer doesn’t need to add any of their own funds. As the total lending would be spread across both assets, the loan to value could be kept relatively low. This gives a buyer preferential rates and the security of owning both assets, with the rental income covering the mortgage payments on the first property.
An option for wealthy parents wanting to help their children onto the property ladder is the spring board mortgage offered by some lenders. As long as the children can prove they have the income to support monthly mortgage payments, the spring board mortgage allows a parent to put 5 percent of a property’s value into a savings account with the lender. This will be locked in for the first five years of the mortgage and returned in full at the end of the term. Because the mortgage repayment method will be capital and interest, the mortgage will have been paid down to below 95 percent of the value at the end of the five years, meaning the bank has more security as there will then be equity in the property. This is attractive to many parents because they will retain their liquid assets long-term.
In a similar scenario, a family has a high value residence with a mortgage of 50 percent loan to value. They would like to help their children onto the ladder but they don’t want to take any more debt on their existing property. The lender will give the children a 100 percent mortgage for their property as long as they can take a charge for 20 percent of the equity of the family home for a period of three to five years, for example. This gives the lender security that should the children default on their mortgage payments, they have equity in the property.
We work with an unusually wide network of lenders, enabling us to tailor financing to even the most complex requirements; please get in touch to discuss how we can help you secure a 100 percent mortgage.