Why hardly anyone gets a 0% deposit mortgage
🔸 Plus: Michael Jackson died owing $500 million 🔸 The worst deal in the history of sports 🔸 Europe is falling behind the US 🔸
Your 2-minute guide to demystifying money and making you richer
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No-deposit mortgages are a bad deal for most people
In theory, no-deposit mortgages sound like the deal of the century: Why bother paying rent when you can get a 0% deposit mortgage and buy a home with no money down?
Indeed, why save for a deposit on a house when you can just get a mortgage for 100% of the price?
And, for that matter, if banks make their profits by charging interest on loans, why don’t they offer more of these things?!
It turns out that no-deposit mortgages (sometimes called 100% mortgages because you’re borrowing 100% of the money) are rare for a reason.
They come with so many strings attached it’s no wonder only 0.3% of all mortgages issued are no-deposit loans, according to Zoopla.
As of right now, only one bank in the UK is offering no-deposit mortgages: Skipton Building Society. They call it the “Track Record Mortgage” because the major string attached to it is that the amount they are willing to lend you is based on your track record of paying rent to your current landlord.
Skipton reports it has only issued £62 million in no-deposit loans. (If all those loans were made at the price of an average house in the UK — £300,000 — then that would amount to only 207 mortgages.)
To get a no-deposit mortgage:
You must be a first-time buyer.
You must have made your last 12 monthly rent payments on time.
You’ll pay around 5.79% interest. Regular mortgages with a deposit of 5% typically charge 4.6% today.
That means you’ll be making higher monthly payments than you would if you’d put down a deposit.
You may have to find a guarantor — usually a family member willing to open a savings account linked to your mortgage. If you fail to make payments on the mortgage the bank will take money from your guarantor’s savings.
The final risk with 0% mortgages is “negative equity”. If you buy a house with a mortgage for £200,000 and the property market slips by 5%, for example, you’re suddenly paying £200,000 for a house worth only £190,000 — which means you won’t be able to sell it unless you’re able to pay the bank that £10,000 in lost value.
If you’re intending to own the property for several years, however, the risk of being “under water” on your mortgage is low — the reason the UK has a housing crisis is because the demand for housing far exceeds the supply. Also, we’re an island. They’re not making any more land.
Zoopla made this chart showing what you’ll typically pay in various regions:
Obviously, a no-deposit deal works out pretty well in the North where property is cheap. It’s a terrible deal in the South where things are expensive.
The number of people who are a good fit for a no-deposit is thus very small: You’re likely living in the North, need to buy right now, have parents willing to back you, a good track record on rent, and can afford higher montly payments.
It might be wiser to get a LISA
If this isn’t you, but you still hope to buy, then Moneyin2’s best advice is to save using a Lifetime ISA account. Most banks and the major investment web sites offer them. It’s designed for people aged 18 to 39 who are saving specifically to buy a house. You can put up to £4,000 per year into a LISA, earn interest, and the government will match that with a further £1,000 annually. It’s free money for first-time home buyers.
And for dessert …
Michael Jackson died owing $500 million. The singer died in 2009 but his estate’s executors haven’t made any payments to his heirs — his mother, Katherine, and children Prince, Paris, and Blanket — have so far received nothing.
Steve Ballmer is now richer than Bill Gates. He started his career at Microsoft as Gates’ assistant.
July 1 was the anniversary of the worst deal in the history of sports: Every year on this day the New York Mets must pay ex-player Bobby Bonilla $1,193,248.20. Back in 2000, the Mets owed Bonilla $5.9 million on his player contract. But instead of just paying it off, they decided to make a series of annual deferred payments through 2035 at an interest rate of 8%. He’ll get nearly $30 million by the time the agreement is over.
What happens to stocks when they hit a new all-time high? Here are a bunch of charts that will persuade you to buy and hold.
Europe vs the US. We’re falling behind in terms of our economy and our markets. Lotsa charts.
Why did the Conservatives do so poorly in the election? There has been hardly any wage growth in the UK since 2008.
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