The 100% mortgage: A closer look for future generations

Homeownership remains a dream for those of all generations, but taking that first step can be daunting for many young buyers.

This is particularly true as house prices continue to rise, with MoneyWeek reporting a 3.5% increase in April 2025. Moreover, BBC News notes that the UK’s economy shrank by 0.3% in April, making the future uncertain for many.

If your loved ones are trying to buy their first home and finding it challenging, they might look at options such as the 100% mortgage.

While not widely available, 100% mortgages could help your children or grandchildren get on the property ladder without needing a deposit. This may sound like a golden ticket, but there are pros and cons to consider.

Here’s what you need to know and how you could help.

100% mortgages may be right for some, but only in niche circumstances

A 100% mortgage covers the entire cost of the property, unlike a traditional mortgage, which typically requires a 5% to 20% deposit. Introducer Today notes that these were once more common, but after the 2008 financial crisis, regulations tightened up, and lenders began to exercise more caution.

They may have their place, and they may suit both young and older buyers, but it’s vital to weigh up the pros and cons.

The pros of a 100% mortgage:

• No upfront deposit required. For those with a stable income but limited savings, a 100% mortgage removes the biggest barrier to buying a home.
• Faster entry to the market. Without the need to save for a deposit, the time it takes to become a homeowner could be significantly reduced.
• Potential for capital growth. If property values increase, the homeowner benefits from capital appreciation, even with a 100% mortgage.

The cons of a 100% mortgage:

• Higher interest rates. Lenders take on more risk when offering a 100% mortgage, as there’s no upfront equity from the borrower. To compensate, they may charge higher interest rates compared to mortgages with a deposit.
• Negative equity risk. This is perhaps the biggest danger, as the homeowner could find themselves in negative equity. If property values fall, the outstanding mortgage balance may become higher than the property’s value. This could make it challenging to sell or remortgage without incurring a loss.
• Stricter affordability criteria. Due to the increased risk, lenders offering 100% mortgages are likely to require higher, stable sources of income.
• Limited choice of lenders and products. Even if 100% mortgages become more common, the market remains niche, so buyers may have limited choices and access to less competitive deals.

Though they have their allure, 100% mortgages can come with considerable risks and are generally not the ideal route to homeownership for everyone.

In some niche circumstances, they may be a good fit. For example, a young professional with a high-paying, stable job might benefit if they were looking to buy fast in an area that’s poised to see notable house price growth. However, the inherent risks still make it a less desirable option for many.

Indeed, the “ideal” scenario for a first-time buyer almost always involves having some form of equity from day one.

A gifted deposit could help a family member avoid the risks of a 100% mortgage

Given the challenges associated with 100% mortgages, a more common and often more financially sound way for older generations to support their younger family members is to offer a gifted deposit.

A gifted deposit is a sum of money given by a family member to a homebuyer to contribute towards their mortgage deposit. This could allow them to:

• Access better mortgage deals, as a larger deposit could translate to lower interest rates and a wider choice of options.
• Reduce their monthly payments, since a smaller loan amount could mean lower and more manageable repayments.
• Build equity sooner and provide a buffer against market fluctuations.

There are some important considerations to keep in mind when gifting a deposit, and the advice of both a mortgage expert and a financial planner could be invaluable here.

• The deposit must be a true gift. Lenders will require written confirmation that the money is a non-repayable gift, not a loan. This usually involves a “gifted deposit letter”.
• As a benefactor, you need to provide proof of funds. You may need to demonstrate proof of where the funds came from to satisfy anti-money laundering regulations. This could be as simple as providing bank statements.
• There may be tax implications for you. While immediate tax isn’t usually an issue for the recipient, if you were to pass away within seven years of making the gift, it could be subject to Inheritance Tax (IHT), and taper relief may apply.

It’s almost important to consider how providing a gifted deposit could affect your financial situation, from retirement planning to investment opportunities.

Navigating the complexities of homeownership, especially when you’re considering how to support future generations, requires careful planning.

Whether you’re exploring options such as gifted deposits or simply want to ensure your own financial resilience, professional guidance can make all the difference.

This is something we can help with.

For tailored financial advice suited to your needs and those of your family, get in touch.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

All information is correct at the time of writing and is subject to change in the future.

The Financial Conduct Authority does not regulate estate planning or tax planning.

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.

Remember that taper relief only applies to gifts in excess of the nil-rate band. It follows that, if no tax is payable on the transfer because it does not exceed the nil-rate band (after cumulation), there can be no relief.

Taper relief does not reduce the value transferred; it reduces the tax payable as a consequence of that transfer.