Should I be wary of 100% mortgages?

Skipton Building Society recently hit the headlines after announcing that it was offering a deposit-free mortgage, aimed at first-time buyers currently living in rented accommodation.

This type of home loan used to be easy to find, but 100% mortgages were taken off the market in the wake of the 2008 financial crisis.

However, 15 years later, the situation is very different, with many people facing staggeringly high rents, and finding the prospect of getting on the housing ladder increasingly distant.

According to figures from RightMove, average monthly rents in London are now £2,500, and in the rest of the UK, tenants are paying about £1,190 a month.

Skipton believes its new mortgage will therefore help those who are “trapped in rental cycles”, don’t have access to the so-called Bank of Mum and Dad, and as a result, aren’t in a position to save up for a deposit on a house.

The building society’s 100% mortgage is for a five-year term at a rate of 5.49%. In order to be accepted, borrowers must demonstrate they have a good credit history and have been able to pay their rent on time for the last 12 months. Furthermore, they don’t need to have a guarantor in order to secure the home loan.

Concerns have been raised, however, by no less than the Bank of England governor himself – Andrew Bailey.

Speaking to the BBC, he said: “I’m not going to say no to 100% mortgages, but both lenders and borrowers have to be very careful about this.

“You can get quite a few problems. People can often get stuck with mortgages for a long period of time which they can’t trade out of. I think we have to watch it very carefully.”

First-time buyers unsure about 100% mortgages

Interestingly, many first-time buyers also appear to be hesitant, even as they grapple with issues such as soaring house prices, rising interest rates and being unable to pay prohibitively high deposits to make a purchase.

According to research by gradual homeownership provider Wayhome, just 26% of those who bought their first home in the last year would have considered taking out a 100% mortgage when buying their current property.

Meanwhile, only 21% said they’d be willing to make bigger mortgage repayments each month to secure a 100% mortgage.

And notably, just 28% of those polled actually knew how much more a 100% mortgage would cost them every month.

Nigel Purves, chief executive of Wayhome, acknowledged that many “beleaguered” first-time buyers will “welcome the prospect of a 100% mortgage”.

However, he insisted that “the devil is very much in the details”, and that anyone considering a 100% mortgage should be “fully aware of just what they are signing up for before taking the plunge”.

“Not only are you unlikely to qualify for a mortgage on the house you actually want due to income limitations and lending caps, but those that do make the cut face a far higher monthly repayment cost as a result,” Mr Purves said.

“With the market also showing signs of cooling in recent months, there’s a very real chance you could find yourself falling into negative equity at the slightest sign of a house price downturn.”

Of course, we are not here to tell you that you definitely shouldn’t take out a 100% mortgage. Depending on your circumstances, it could be the perfect option for you and help you achieve your dream of getting on the property ladder.

But the return of 100% mortgages to the market is a reminder to first-time buyers to look beyond the headline statement in an advert, read the small print and consider their specific situation before committing to anything.

If this seems a daunting task, remember you can always speak to a professional financial adviser, who is able to take a holistic look at your finances and offer advice that genuinely reflects your needs, circumstances and goals.

Please don’t hesitate to get in touch if you have any questions.

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The guidance and/or advice contained within this website is subject to the UK regulatory regime and is therefore primarily targeted at consumers based in the UK. Welby is a trading name of Welby Associates Wealth Management Ltd Company Registered Number NI630504 who is authorised and regulated by the Financial Conduct Authority, FCA register number 697372. The Financial Ombudsman Service is available to sort out individual complaints that clients and financial services businesses aren't able to resolve themselves. To contact the Financial Ombudsman Service please visit

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