What are the pros and cons of 100% mortgages?

A 100% mortgage is, very simply, a home loan which allows the buyer to purchase a property without putting down any money (or a deposit) up front.

Prior to 2008, it was common for lenders to offer deposit-free mortgages as standard, with some even allowing consumers to borrow more than the property’s value for living expenses. But 100% mortgages were a notorious casualty of the 2008 financial crisis, and such products were pulled from the housing market in the aftermath of the crash.

Fast forward to 2023, and a crisis of a different kind. In response to the very real difficulty first-time buyers have faced when purchasing a first home, some lenders began to offer 100% mortgages once more.

So if you want to buy a property that is worth £325,000, you would be able to borrow £325,000.

Any lender offering such a product will expect potential first-time buyers to have good credit history and will look at debt-to-income ratios – how your monthly debt payments compare to your monthly income.

The pros

The most obvious pro is that no house deposit is required. Skipton Building Society foundthat nearly 4 in 10 renters spend 45% of their income on rent or other living costs, which makes saving for a deposit very hard.

100% mortgages also increase homeownership opportunities and give greater flexibility in terms of financial planning. Certain lenders are even offering cashback to borrowers or providing specific products that consider your track record for paying rent.

The cons

According to Money Supermarket, almost all 100% mortgages will have to be guarantor mortgages, meaning that a family member or close friend must commit to using their own savings as security against the loan.

With these loans posing a higher risk to the lender, first-time buyers who take out these products will almost certainly pay higher interest rates. They are also likely to face much stricter lending rules. This can be particularly hard for those who have low credit scores and may not be able meet a lender’s eligibility criteria.

While options exist in the market, they are certainly not as widely available as more traditional mortgages. If you’re looking solely to purchase without a deposit, it can restrict your options.

Perhaps the biggest drawback is the risk of getting into negative equity. If the buyer wishes to eventually sell, and the property’s value decreases, the buyer will owe more on the home than it is worth.

If in doubt, seek advice

As experts in mortgage advice, we can help you navigate the many different products on the market, as well as schemes aimed at first-time buyers, to work out what is actually the right and most affordable option for your individual circumstances.

To book your appointment with a financial adviser, please call Ryan Walters or Joe Walters on 01227 375500 or email us on admin@oysterfinancialsolutions.co.uk.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

Approved by The Openwork Partnership on 13/03/25.