First time buyers are having immense difficulties getting onto the property ladder. With huge income multiples needed, many mortgage lenders have introduced supersize mortgages where FTBs can borrow more than the property is worth – normally up to about 125%. This excess can be used for a variety of things including paying the stamp duty, covering all the extra costs of buying a home (legal fees etc), clearing existing debts, or immediate home improvements.

The number of borrowers who are borrowing 100% has doubled in the last year and many in the industry also claim that borrowes taking 100+% deals are growing nearly as fast. With high rents and large student debts, these kinds of deals are life savers for buyers who are finding it increasingly difficult to save up deposits on their homes. However it is important to remember that there is also a negative side to these kind of deals.

Interest Rates
Usually, premium rates will be charged for 100% and above mortgages – sometimes 1% more than if you can manage to scrape together a 5% deposit. If you can, it really is worth trying to build up some sort of deposit as the rates will generally be a lot cheaper and the amount of money that you pay back overall and the monthly payments will end up being a lot less.

Negative Equity
The housing market has been strong over the past few years, however if prices dip, borrowers who have taken a 100% mortgage will soon end up in negative equity – where the price of the house is less than that of the loan. If you borrow more than 100%, you are in negative equity from day one.

If you are happy with your house, negative equity isn’t such a big deal and property prices do normally increase over time. However, with little or no equity in your house, it can make it difficult to climb the housing ladder in the future.

Negative equity also means that if you get into financial troubles, you cannot just had the keys to your property back to the lender – if the property sells for less than you owe, you will still be liable for the difference even though you no longer own the property.

Remortgaging
The strong housing market has helped borrowers in the past who took out 100% mortgages as they have plenty of equity in their property thanks to huge increases in property prices. This means when it comes around to remortgaging, they can take out better deals.

With the market set to cool, today’s 100% borrowers may not be so lucky and may have to remortgage within the 100% market again when their deal comes to an end. It is possible that you will get a better rate than you originally had, however this isn’t a guarantee and you may end up with a smaller range of remortgage choices than you would have liked.

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