We Bought Our First Home with 100% Mortgage: A Choice Despite the Risks
32-year-old Conroy and his 28-year-old partner Amber were far from realizing their dream of owning their own home until last year. They were working in central Manchester and did not have enough financial means to save. However, they came across a type of mortgage that is less known and considered risky by some experts. The Track Record mortgage offered by Skipton Building Society covers 100% of the property's value, allowing the borrower to become a homeowner without making a down payment.
Those wishing to apply for this type of mortgage must meet certain criteria and pay a higher interest rate. For Conroy and Amber, this rate is fixed at 5.33% for five years. In August, they purchased a four-bedroom house worth £242,000 in Swinton, on the outskirts of Manchester. Conroy says, “We really haven't realized that it’s ours yet.”
According to Bank of England data, the mortgage rate for those with less than 10% down payment has reached its highest level since 2008. The average down payment for first-time buyers is around 20%. In recent years, lenders such as Lloyds, Santander, Skipton, and Yorkshire Building Society have started offering new mortgage options that allow for valuations over 95%. This aims to assist first-time homeowners during a period when house prices are rising and saving for a down payment is challenging.
Conroy and Amber will pay £1,500 a month with a 25-year loan, which is close to their previous rent payments. Conroy states that the high cost is not a problem for them, noting that their earnings are good and they expect their salaries to increase in the future. However, they are also aware of the risk of negative equity with a no-down-payment mortgage. This arises when the value of the property is less than the amount owed on it. They plan to make additional payments during the first five years to increase the value of the home.
A similar situation occurred for 27-year-old Bronya and her 29-year-old partner George. In August, they bought a four-bedroom house in Rhuddlan, North Wales. Lloyds lent them £258,000, and they only paid a £5,000 deposit. Bronya states that they prefer to use some savings to renovate their home. George says, “We bought this house to stay here for a lifetime.”
The widespread use of low down payment mortgages during the 2008 global financial crisis had become a major issue. However, today's mortgage options have much stronger qualification checks. Experts emphasize that buyers should be cautious, considering their financial situation. "Think about your monthly payments and keep in mind that interest rates could rise," they say.
Source: BBC Business
