Renting can be a great option for so many reasons. It can provide you with more freedom, there’s no need to pay for maintenance costs and you don’t need building insurance. It could also enable you to live in a better place than you could ever afford if you bought a property yourself.
But many tenants have plans to buy their own places. And if you are currently thinking about buying a property of your own, you may be interested to hear about the latest mortgage to hit the headlines – one that does not require a deposit.
For many home buyers, saving up for the deposit is the hardest part of buying a home, so this might sound very attractive. But it may not be all that it seems, so here's a guide to what you need to know.
What's the Deal?
The mortgage is being provided by Barclays, and it is the first 100% mortgage to hit the market since 2008. Before this, 100% mortgages were relatively common, but the Credit Crunch put an end to them. Now they are back, and once again no deposit is needed.
In addition, Barclays is willing to lend up to 5.5 times the income of the borrower, while previously this was limited to 4.4 times the income. However, this is only for those earning over £50,000.
The mortgage is also a three-year fixed deal, with the interest rate set at 2.99%.
What's the Catch?
Apart from the high earnings required to borrow 5.5 times the income, there is another catch. A helper, often the buyer’s parent, has to put 10% of the purchase price in cash into a Barclays savings account that is linked to the mortgage.
Here their money will accrue interest at 2%, and the helper will get their money back three years later with the interest – as long as the mortgage payments are up to date.
Is It Just for the Wealthy?
The Daily Mail reported on the new mortgage, and its conclusion was that this is only really providing hope to buyers from wealthy families. The bank of mum and dad is still going to be required for most buyers, and according to the Daily Mail, parents are set to lend their children £5 billion this year to buy properties.
Perhaps the main people to benefit from this are the buyer's parents. They may not be willing to hand over a large deposit, but the thought of getting their money back with interest in three years could be attractive.
There are also some who are suggesting the whole idea of a 100% mortgage is not sensible. The Evening Standard quoted the chief executive of Virgin Money, Jayne-Anne Gadhia, saying that the mortgage is "a step to far" and that Virgin Money would not be offering 100% mortgages.
Always Compare Your Options
If you are considering purchasing a property, always look at all of your options carefully. While a 100% mortgage may sound very tempting, it may not be suitable for all buyers. If you don't have someone who can put 10% of the property value into a savings account, this mortgage is not going to be for you.
If it is not right for you, keep looking and keep researching the mortgage market. You may come across a more suitable product that may help you to make your dream of home ownership a reality.