With several providers now offering 100% mortgages, and big lender Barclays now joining in with another new product, it looks like those with little or no deposit finally have the chance to own their own home. But are these deals as good as they seem to be?
No matter which 100% mortgage product you choose, there needs to be a certain amount of parental or family support. Whether the parents act as guarantors, or deposit a percentage of the house value into an account for a fixed number of years, whoever buying the house needs to have financial security provided by their family.
There are a limited range of 100% mortgage products, with Barclays being the only ‘big bank’ currently offering such a deal. With only eight no-deposit products, compared to 250 mortgages available if you can raise a 5% deposit, there is not as much choice and flexibility. However, fees and interest rates remain competitive.
So how can Mum and Dad help?
Some lenders require parents or families to put a percentage of the purchase price into an account to be held for a fixed period time. For the Barclays product, it is 10% into the Helpful Start Account for three years, although percentages and time periods vary.
Other lenders ask for guarantees from parents, so the some of cost of the new property is secured on the parents’ home. This removes the need for parents to put up the money up-front, although it does rely on a great amount of trust between families.
Families, as well as the buyers, are also put through stringent financial checks to ensure affordability.
Even without the new 100% mortgage products, it seems as though the Bank of Mum and Dad will still be a major force in the mortgage market. New research has suggested that parents will become the UK’s 10th largest mortgage lender this year. Legal & General says family connections will help finance 25% of all UK mortgage transactions in 2016 - at an average contribution of £17,500.