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100% mortgages are a dangerous game
100% mortgages are a dangerous game 倫敦
By   RYAN BEMBRIDGE
  • 城市報
  • Mortgages
  • 100% Mortgages
  • UK housing market
Abstract: Octane Capital has warned that taking out a 100 per cent mortgage, as Skipton Building Society does, is a "dangerous game" in the current climate due to uncertainty over interest rates.

This week Skipton Building Society extended its lending range to enable both previous homeowners and first-time buyers to apply for a 100 per cent mortgage.


Jonathan Samuels, chief executive of Octane Capital, said: "We are a nation hell-bent on buying a home, so it's no surprise that the demand for 100% mortgage products has expanded from first-time buyers to existing homeowners.


"However, with interest rates currently high and uncertainty remaining as to when rates will come back down, this could be a dangerous game to play."


Octane Capital compared the monthly cost of Skipton's 100 per cent mortgages for first-time buyers and existing homeowners with alternative mortgage routes through conventional lender deposits.


When Skipton first launched its 100 per cent mortgage for first-time buyers in May this year, the average monthly repayment was £1,458 - based on an interest rate of 5.49 per cent over 25 years and an average house price of £237,542 at the time.


In comparison, first-time buyers with a 15 per cent deposit through a conventional lender had average monthly repayments of £1,091 and an average mortgage rate of 4.22 per cent.

100% mortgages are a dangerous game

This means first time buyers are paying almost £370 more per month (34 per cent) on a 100 per cent mortgage, or over £4,000 more per year.


Skipton has now increased the rate to 6.19 per cent, up 0.7 per cent since May this year. Over the same period, the average rate offered by conventional mortgage lenders has risen by 1.12 per cent to 5.34 per cent.


Despite the lower rate increase, today's first-time buyers opting for a 100 per cent mortgage will still have to repay an average of £1,572 per month in full, which is £340 per month (28 per cent) more than those opting for a conventional mortgage with a 15 per cent deposit.


For existing homeowners looking to climb the ladder with a 100 per cent mortgage, the additional cost of borrowing without a deposit is even higher.


Based on the current average house price (£290,785), with a 20 per cent deposit, the full monthly repayment for the average homebuyer in the current market would be £1,342.


However, if a 100 per cent mortgage is chosen, the monthly repayment will increase by £565 (42 per cent) to £1,907, or almost £6,800 more per year.


The extra cost of a 100 per cent mortgage is considerable, adds Samuels, and while you can secure a foot on the property ladder without an initial lump sum deposit, you'll certainly pay for the interest owed, if not more.

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