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Do I need a deposit to buy a home?

For first-time buyers looking to make their first move into home ownership, a big stumbling block is often finding the 5% or 10% of the cost of their home they need before they even get started. After all, with job and wage growth still slow in post-recession Britain and house prices continuing to rise, potential homebuyers who are constantly reminded to save could be forgiven for thinking ‘save what?’

There is an alternative option, however, with the return of the 100% mortgage. A popular option pre-2007, lenders have started offering 100% mortgages again in the last year or so, although they are not quite the same as they once were.

Perhaps the main difference between the 100% mortgage of today and its pre-recession equivalent is that lenders have absolved themselves of most of the risk of offering one. How? By transferring the risk to a guarantor of the potential buyer.

People looking to take up a 100% mortgage need to find a family member or other party to act as a guarantor. This is essentially a big favour from the guarantor, who has little if anything to gain from the deal other than the satisfaction of helping somebody afford their new home.

The guarantor’s home and savings will be at risk if mortgage payments are not made. Their savings will be held by the lender, often meaning no interest on them. There’s also the threat of negative equity making this a raw deal for all parties involved.

Nevertheless, the 100% mortgage certainly offers an option to those who dream of owning their own home but simply can’t stump up the funds to find a deposit, but it’s an option that requires careful consideration from both the borrower and the guarantor, or it could result in a messy situation for both parties.

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