The variety of ‘zero deposit’ residential mortgages taken out in 2024 was up 32% in 2024 in comparison with the year earlier than, rising to 622 up from 470 in 2023.
That’s in keeping with chartered accountants, Lubbock Fine.
It mentioned the complete worth of those 100% loan-to-value mortgages was £197 million in 2024.
What is a ‘zero deposit’ mortgage?
‘Zero deposit’ or 100% mortgages are mortgages the place the worth borrowed matches the worth of the property being bought. There is not any deposit or downpayment from the house purchaser.
The worth borrowed beneath these 100% loan-to-value mortgages is often capped at 4.5 instances the applicant’s annual wage.
Lenders usually require a guarantor – often a member of the family – for the mortgage.
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Andy Noton, companion at Lubbock Fine, says demand for these merchandise has grown steadily in latest years, pushed by the cost-of-living disaster and rising home costs. He provides that the latest enhance in ‘zero-deposit’ mortgages suggests extra younger and low-income patrons are counting on them to entry homeownership.
Noton mentioned: “Sluggish wage progress and excessive home costs have made zero deposit mortgages a sexy choice for folks seeking to get on the property ladder.”
“Practically all these loans will probably be to first-time patrons who aren’t in a position to save giant money sums for conventional mortgage merchandise and may’t depend on the Bank of Mum and Dad for a deposit.”
Are zero-deposit mortgages dangerous merchandise?
Noton warns that zero-deposit mortgages can nonetheless carry dangers for patrons. He defined: “They usually have larger rates of interest than conventional mortgages, which may make month-to-month repayments steep, even on decrease worth properties. These excessive charges additionally make it tougher to construct up fairness in the property rapidly. This, in flip, might make it tough to remortgage if the Bank of England’s base price comes down.
“Additionally, there’s the next danger of debtors falling into destructive fairness, the place the worth of the excellent mortgage exceeds the worth of the property. This might decrease debtors’ credit score scores and restrict their entry to loans in future.”
