Problems if house prices fall
The housing market seems to be changing day by day, well at least the reports we get with regards to the current situation seem to be. The latest warning is for first-time buyers who are thinking about taking out a 100% mortgage to get on the property ladder.
The word on the street is 'don't'. It is thought that 1 in 20 first time buyers who have taken out a 100% mortgage, could be in trouble if the value in their property falls, something that has been suggested as the house prices have taken a very miniscule drop. this is mainly because many 100% mortgages are of the interest-only kind, so you are not really paying anything off your loan, just the calculated interest.
If house prices fall and you have a 100% mortgage then your property is classed as being in negative equity - basically your home would be worth less than what you owe on it. So if you wanted to sell your home and move, you would still owe money to the mortgage lender. This would stop most people moving house and effectively trap them in that area until house values rose again.
Renting, which has always been the less economical option, has now finally taken the lead and is often cheaper than buying your own home. It is worth sticking it out renting until you have a suitable deposit.
To be honest, a 100% mortgage is a scary thought anyway, even if interest rates rise, this could just be too much for some people to continue to afford their monthly repayments. So it is best to avoid the situation at all costs.
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