Should you get a 100% mortgage?

If you’re having trouble saving for a deposit but want to get on the property ladder, you could opt for a 100% mortgage. Sonal Patel looks at the pros and cons

One of the most difficult things for first-time buyers is saving up a deposit. As house prices have soared in recent years, even scraping enough cash for a 5% deposit can be a struggle. The average home in the UK now costs £160,000, meaning a 5% deposit would set you back £8000.

The golden rule is: the larger your deposit, the better the mortgage deals that’ll be available to you. For example, even just having a 10% deposit instead of 5% can mean a difference of 0.5% on a typical two-year fixed rate. This will save you almost £100 a month in repayments based on a £150,000 repayment mortgage.

However, if you can’t save for a deposit all is not lost, as more and more lenders will now let you borrow up to 100% of a property’s value. But you will pay a higher interest rate - typically 1% more than the best buy mortgage deals - and there are risks.

“With a 100% loan, any fall in the value of your home means that you owe more than your home is worth – a situation called negative equity,” warns a broker at London & Country Mortgages in Bath. “This is a danger when you come to sell or you want to remortgage.

“However, if you can afford your monthly repayments and you don't need to move in the short term, then this risk is reduced, because you can afford for the market to fluctuate a little.”