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Barclays no-deposit mortgage: a good idea?

May 10, 2016

It’s the news that has got everyone talking: Barclays are bringing back the 100% mortgage.

The zero-deposit deal is the first of its kind since the financial crisis, putting home ownership back within reach of a big group of potential buyers.

But before you start flicking through our properties with a big smile across your face (which you can do by clicking here), here’s our guide on how it works, who it may benefit, and whether it’s a good idea…

What's the rate?

A three-year fixed-rate Springboard mortgage at 2.99%, with nothing to pay up front.

How does it work? 

The no-deposit deal allows hopeful homeowners to borrow up to 5.5 times their income - if they have generous parents!

In order to get the mortgage, borrowers must get their parents or relatives to put 10% of the purchase price in a Barclays’ savings account. That money has to remain in that account for at least three years from the completion date of the mortgage.

The savings will be released when the three years are up with interest, on the condition that the mortgage repayments have been paid.

How much can you borrow?

The amount you can borrow depends on a number of things. First of all, there’s a cap on your income multiple, which will likely be five times your salary. Barclays Premier customers can borrow a little bit more - up to 5.5 times their income.

The amount you can borrow is also dependent on affordability. Borrowers will have to undergo rigorous testing to prove they have enough income to cover mortgage costs plus other monthly expenses - so not everyone will qualify for the loan. The maximum amount you can borrow is £500,000.

What are the negatives?

Industry experts have slammed the mortgage - saying it will ‘help people buy property they can’t afford.’

And in some ways they are right. Borrowing the value of your property is a big risk. Your property could decline in value after the three years, which would leave you trapped in negative equity, (where your mortgage is larger than the value of your property). You may even lose your job or have to sell your house - which would leave you unable to pay your mortgage payments and in big trouble.

If you’re stuck with negative equity you will find it extremely hard to get a new mortgage deal, so you’ll be forced to stay with your current provider at whatever rate they’re charging.

Despite all of this, it will enable a large number of people to become homeowners, which in itself is great. If you view a home as a place to live and a roof over your head, rather than an appreciating asset, a 100% mortgage can only be a good thing.

What rate may you end up paying with Barclays?

If you opt for the Barclays 100% mortgage, you’ll pay a fixed rate of 2.99% for the first three years.

After the three years you will then pay the Barclays Bank Rate as well as 2.49 percentage points. Currently, the Barclays Bank Rate is 0.5%, which would leave you with a rate of 2.99%.

Though that rate is the same today, it could change at any time, so there is always that risk that it will shoot up after the three years.

If you want any more information on mortgages, we recommend calling expert mortgage advisor, Alex Smith of Capricorn Financial on 0208 834 1516.

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