Reply to: 100% Mortgage

[Power Mortgages Ltd]

As mentioned earlier on in the thread, the '100%' mortgages out there at the moment are not true 100% mortgages. The bank/building society will lend you 100% but it normally has to be backed by a 10% - 15% deposit into a bank account by a relative (normally bank of Mum and Dad). The idea being that relative puts in 10% - 15% of their hard earned money into a savings account which they normally cannot touch for a certain period of time (2 years in most cases I believe) and the lender then lends 100% to the borrower. If the borrower defaults then the lender has claim to the savings the relative has placed in the savings account to recoup their losses. If after the 2 years all is well and payments have been made on time and are up to date, the relative can then withdraw their savings. At that stage (or the point the borrower's fixed rate ends if that is later down the line) assuming property prices have increased slightly and given that with a repayment mortgage the borrower would have chipped away at the original sum they borrowed, you would hope/expect the loan to value to have come down slightly, possibly to 95% where there could be other options to remortgage to (although not very many at that loan to value).


I do not personally see many, if any true 100% mortgages coming back into the fray at this point in time given the uncertainty of the economy due to Brexit. You already have some Banks/Building Societies reporting property prices have dropped recently so to be handing out 100% mortgages in a market where property prices could be falling is very, very risky.


Best advice as previously mentioned by a few other posters would be to save up a 5% deposit (remembering other fees like stamp duty - if applicable, legal fees for buying and valuation fees) then go for a 95% mortgage which are available as a contractor.


I would seriously avoid the suggestion of relinquishing control of your company down to below 20% of the shares and applying as someone who is employed with 3 months payslips set at a figure of your choosing. As pointed out by another poster, that is effectively committing mortgage fraud and if the lender were to become suspicious of this you could find yourself in a position where not only they decline the lending now but fraud markers are placed against your name which all lenders share and your ability to obtain mortgage funding at any stage in the future would become seriously impaired. Just because a couple of people have got away with it, it doesn't mean to say you will.

Lenders will often accept gifts from immediate family members to contribute toward the deposit too so if a parent, sibling, grandparent, aunty or uncle can gift you the money toward the deposit, you can always look to proceed sooner rather than later too.

Help to Buy as previously mentioned is also another option but only on a new build property purchased directly from the builder/developer and the property has to be available under the Help to Buy scheme (the builder will tell you if it is or not). You will still need a 5% deposit which can again be gifted to you by a relative but the Government will contribute a further 20% equity loan to go toward your deposit so the lender only needs to provide you with a 75% mortgage. The advantage here for you is obtaining a cheaper interest rate and lower payments on a mortgage and being able to buy a new build property with only a 5% contribution of your own (ordinarily lenders require a 15% deposit in most instances if buying a new build property without Help to Buy assistance).

The 20% equity loan is interest and repayment free for the first 5 years, after which you start making payments on the loan but only the interest at a nominal rate of 1.75% (which subsequently increases by inflation + 1% each year thereafter). You can pay back the 20% at any stage in the term of the loan either through remortgaging, savings or sale of the property but a point to consider which alludes a number of people is that the Government effectively own a 20% stake in your property so when it comes to repaying them, it is not simply the original £ value you were given by them, it is 20% of whatever the property is worth at the point of settling the loan. Therefore if you purchased for £100,000 and the equity loan was £20,000 and advance 10 years and the property is now worth £200,000, the 20% you would owe them to redeem would have also doubled to £40,000.

Ben

[pr1]

You have made a very good point if the person has a permanent job and is able to get an offer of a 100% mortgage and has some savings.

...or, your reply is not something that matches the requirements of the OP, based on what they have told us. (A standard trait on CUK "You have asked a question I can't answer so I will ignore it and reply with a completely unrelated response")

OP asked for pros/cons, you tried to outline and emphasise a perceived con, I highlighted the hundreds and thousands of pounds you were missing from your calculations

[Old Greg]

A couple of things:
1. You're a contractor, you should have some savings building up in a warchest, so you should be able to put some sort of deposit down
2. You're a contractor so not every lender will offer you a mortgage.

Now, once we get past those, the next thing to do is run the numbers.
https://www.moneysavingexpert.com/mortgages/best-buys

For the purposes of this experiment, I've gone for a £300,000 house on a 25 year mortgage.
100% mortgage, best deal will cost £16,610 in the first year @2.75%, £1383 per month
90% = £13,410 @1.64%, £1097 per month
80% = £11,430 @1.44%, £953 per month

...and what does that really mean? Well, if the interest rates stayed the same throughout the life of the mortgage:
100% mortgage total repayable = £414,900
90% = £359,100 (including the deposit) - that's saving you £55,800
80% = £345,900 (including the deposit) - that's saving you £69,000

But if interest rates go up, which given where they are seems extremely likely, then so will your repayments. On the first one, your payment would go up £160 per month for a rate rise of 1%. The same rise on the second one would mean £133 extra while on the third it's £117 extra

Nobody stays on a 100% mortgage interest rates for 25 years. You build up the equity through repayment and (usually) house price increase and then remortgage to a lower rate.

[WTFH]

Ah the standard CUK "you have made a good point but I will ignore it and reply with a completely unrelated one" response

You have made a very good point if the person has a permanent job and is able to get an offer of a 100% mortgage and has some savings.

...or, your reply is not something that matches the requirements of the OP, based on what they have told us. (A standard trait on CUK "You have asked a question I can't answer so I will ignore it and reply with a completely unrelated response")

[pr1]

Not if you are a contractor with zero savings who can't get a 100% mortgage.

Ah the standard CUK "you have made a good point but I will ignore it and reply with a completely unrelated one" response

[WTFH]

The "extra cost" of a 100% mortgage starts to look more appealing...

Not if you are a contractor with zero savings who can't get a 100% mortgage.

[northernladuk]

Have you also considered the help to buy scheme? I don't know too much about it, but isn't it a 75% mortgage and a 20% government backed loan with a 5% deposit? If you can't quickly get 5% together as a contractor maybe look at a smaller property or a cheaper area? Whilst you are saving there is the Help to Buy ISA too, that the government kicks in 25% towards. Not sure if these can be combined though, so have a read first.

Some links to back this up...

https://www.freelancerfinancials.uk....s/help-to-buy/

https://www.helptobuy.gov.uk/

[doconline]

Have you also considered the help to buy scheme? I don't know too much about it, but isn't it a 75% mortgage and a 20% government backed loan with a 5% deposit? If you can't quickly get 5% together as a contractor maybe look at a smaller property or a cheaper area? Whilst you are saving there is the Help to Buy ISA too, that the government kicks in 25% towards. Not sure if these can be combined though, so have a read first.

[pr1]

Save and wait until you can put a deposit down. Remember the figures I showed you above? You will spend a fortune in extra interest if you go 100% compared with going 80-90%.

Re-do your numbers with 12 months rent going down the drain trying to save up the deposit, meanwhile the house you would have bought goes up another 3-6%

Repeat for every year you haven't managed to save enough for the deposit for the 90% -

The "extra cost" of a 100% mortgage starts to look more appealing...

[MonkeysUncle]

Well at least there are some positive lessons out of this thread. Don't listen to friends that work in banks or building societies

Well its something they have both done with other people who have come in and it has gone through fine.

As for what happened after (i.e. taking back the LTD, if it flagged up with HMRC) I (and I assume them) dont know.

Agreed the best way forward is just to rent and save, unless you are happy for someone else to own your business for the foreseeable future.

[northernladuk]

Well at least there are some positive lessons out of this thread. Don't listen to friends that work in banks or building societies

[WTFH]

So after looking around a bit I got the following responses:

1 - I cant get a 100% mortgage as a contractor from a contractor specialist mortgage broker (were they look at your day rate/contract rather than SA302). It is not open/available to them
2 - If I do go for a 100% mortgage they will look at SA302 in which case the mortgage I can get is tulip

Workaround (suggested by 2 friends who work at a bank and building society)

If you own more than 20% of a business you are classed as self employed/contractor/director.
Give away 82% of your business to a spouse (or someone you trust). Keep myself on as an employee and then set my salary to whatever I want (e.g. £90K). Run this like for 3 months and then all mortgages are open to me. I dont need to provide SA302, just 3 months payslips and I get can a decent mortgage. It not illegal, just grey.

...and you get screwed on tax, you still have no money, you'll not be able to take much in dividends, you won't own your LTD, if you choose to take over control of the LTD again then alarm bells will be ringing with HMRC.

Save and wait until you can put a deposit down. Remember the figures I showed you above? You will spend a fortune in extra interest if you go 100% compared with going 80-90%.

[meridian]

100% Mortgage

So after looking around a bit I got the following responses:

1 - I cant get a 100% mortgage as a contractor from a contractor specialist mortgage broker (were they look at your day rate/contract rather than SA302). It is not open/available to them
2 - If I do go for a 100% mortgage they will look at SA302 in which case the mortgage I can get is tulip

Workaround (suggested by 2 friends who work at a bank and building society)

If you own more than 20% of a business you are classed as self employed/contractor/director.
Give away 82% of your business to a spouse (or someone you trust). Keep myself on as an employee and then set my salary to whatever I want (e.g. £90K). Run this like for 3 months and then all mortgages are open to me. I dont need to provide SA302, just 3 months payslips and I get can a decent mortgage. It not illegal, just grey.

Not that I am going down this route, but interesting that this was suggested by 2 different people.
At this point its going to be renting for another year to raise up the deposit again.

Grey? If you’re intentionally doing it to gain a mortgage and are then planning to take the company back and reduce your salary it could be construed as fraud.

Stick with the renting and saving plan.

[MonkeysUncle]

Also bear in mind that with property prices looking 'peaky' that any mortgage valuation may be somewhat less than the seller is hoping for, so there will be less flexibility in offsetting any shortfall with a bigger deposit if no deposit is available in the first place, unless the area you are considering has shown recent price falls in asking price that you may be able to convince the seller to entertain.

Let us know how you get on if you decide to go for it. Always helps to get up to date feedback on the state of the contractor specialist marketplace.

So after looking around a bit I got the following responses:

1 - I cant get a 100% mortgage as a contractor from a contractor specialist mortgage broker (were they look at your day rate/contract rather than SA302). It is not open/available to them
2 - If I do go for a 100% mortgage they will look at SA302 in which case the mortgage I can get is tulip

Workaround (suggested by 2 friends who work at a bank and building society)

If you own more than 20% of a business you are classed as self employed/contractor/director.
Give away 82% of your business to a spouse (or someone you trust). Keep myself on as an employee and then set my salary to whatever I want (e.g. £90K). Run this like for 3 months and then all mortgages are open to me. I dont need to provide SA302, just 3 months payslips and I get can a decent mortgage. It not illegal, just grey.

Not that I am going down this route, but interesting that this was suggested by 2 different people.
At this point its going to be renting for another year to raise up the deposit again.

[GreenMirror]

Lets party like its 2007 again

Don't we need a 125% mortgage for that?

Those who bought in 2007 have still done well if they could pay the mortgage. Hold on long enough and you cannot lose.