The Hidden Risk of the 100% Mortgages

House prices have jumped by 32 per cent in the past five years but wages grew just 11 per cent over the same period. In addition the constant message today is that most young people will never own their own homes. These examples could explain the recent resurgence of 100% mortgages. However not only did the previous prevalence of the 100% mortgages fuel the financial crash but it creates a real risk to potential home owners and those who assist them.

The biggest risk of 100% mortgages is negative equity. The banks must find ways to offer products people need but minimise the risks. This phenomenon has led to a sharp increase in down valuations where despite the fact that there is a rise in property prices the property is valued as less than it was previously worth. This is a real risk for borrowers as with no deposit they would be without the security of an equity stake.

If this happens you could;

  • Be unable to remortgage your home to get a better or more affordable rate;
  • Be unable to sell the property without paying money to the bank in additional to the sale price;
  • If you are unable to make payments and you the bank takes action against you could owe them more money in the future after they have sold your house. It is important for anyone considerintg to be a guarantor for a borrower that they fully understand the risks involved.

The banks may ask for a guarantee to protect their interest in the property when offering 100% mortgages. A guarantor would be promising the banks that if the borrower defaults on their mortgage then the bank can demand the money from the guarantor. . This could include the banks putting a charge on the guarantor’s property.

In some cases the banks may demand mortgage payments from the guarantor. Remember part of being a guarantor is that you are agreeing to be in a position to pay if required.

In more extreme cases when property prices decrease and the guarantor can’t afford to pay, then the guarantor’s home may be repossessed.

If you would like independent legal advice for the issues detailed above please contact Bradley Ali on 01992 558 411 for professional advice.

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