What are the Legal Implications of a 100% mortgage?
When looking to purchase a property it can often be difficult to raise a deposit, especially with the current economy, cost of living crisis and the high costs of renting. This is particularly true for a lot of first-time buyers.
One option for homebuyers might be to consider a 100% mortgage or a Track Record Mortgage so that buyers can get onto the housing market without putting down a deposit.
Although conveyancing solicitors cannot (and should not!) provide financial advice, it is thought that the 100% mortgage offers will be a possibility for buyers who can demonstrate that they have been able to pay rent for up to two years.
How would a 100% mortgage work?
From a legal perspective, working with a client who has a 10% mortgage and one which has a 100% mortgage makes very little difference to the actual management of the transaction. The same searches will be undertaken and enquiries raised to protect our client and the significant investment they are making.
However, there could be some differences when reaching the exchange of contracts. Exchange of contracts takes place when the conveyancing solicitor has received the results of the searches, the mortgage offer and satisfactory replies to enquiries that have been raised with the seller’s solicitor, and when all parties in the chain are ready to proceed. When proceeding to an exchange of contracts the buyer is required to pay a deposit which is normally 10% of the purchase price.
If completion does not take place after the exchange of contracts then ultimately the seller would have the right to terminate the contract and retain the deposit. However, if it is a 100% mortgage and the buyer does not have a deposit, then the seller may agree to exchange contracts with a nil deposit. Alternatively, exchange of contracts and completion may take place on the same day which can leave uncertainty about whether completion will take place.
As a conveyancing solicitor with years of experience behind me, I can confirm it is always advisable to let the seller’s solicitor know at the very earliest stage that a deposit will not be available on the exchange of contracts so that they can take instructions from the seller on how they wish to proceed.
The risks of a 100% mortgage
There can be lots of uncertainty about the housing market and what may happen to house prices in the future. When taking out a 100% mortgage this will mean that the buyer does not have any equity in the property. If house prices were to fall then there could be a possibility of being in negative equity. This means that more money is owed to the mortgage lender than the value of the property. It is likely that mortgage lenders may have a fixed rate period of five years for this type of mortgage to try to help remove concerns about negative equity.
Mortgage lenders have to make sure that they are responsible and consider whether the mortgage is affordable. If a buyer is in a position where they cannot afford a deposit to purchase a home then if there are any surprise expenses for the property then this could mean that they could find it difficult to meet the monthly mortgage payment.
Not all lenders will offer this type of product and so if a buyer wishes to proceed with this option it is recommended that they take advice from an experienced mortgage broker at the earliest opportunity.
If you are looking to buy a new home, with or without a 100% mortgage, then GA’s award-winning conveyancing solicitors in Plymouth can help. Speak with us today for a no-obligation discussion. Call 01752 203500 or email enquiries@GAsolicitors.com.
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