Mortgage Advice Bureau, a broker, last week reported a 50% rise in the number of consumers taking out loans for 100% of the property’s value last year.

Brian Murphy at Mortgage Advice Bureau said: “There is an increasing propensity for people to borrow 100%, or more. Even those who have some savings find that they are eaten up by stamp duty, legal costs, mortgage applications and surveyor’s fees, leaving them unable to put down a deposit.”

However, he warned: “I feel that the demand is as much a result of increased marketing by the lenders as due to the rise in house prices. Buyers should wherever possible try to raise a deposit and only consider a 100% mortgage if absolutely necessary. Even if an increase in interest rates does not seem immediately imminent, circumstances can change fast and could leave those who have stretched themselves too far in deep financial trouble.”

Demand for 100% mortgages comes mainly from first-time buyers, but they are not the only ones. Some divorcees and people who have come out of long-term relationships find the only way to buy a new property is to borrow the entire amount.

But if you have no deposit, you have no money in your home and are therefore at a higher risk of negative equity should property prices fall. David Hollingworth at L&C Mortgages, a broker, said: “You are more at risk of negative equity if house prices fall, but if you are struggling to get a deposit together and think it is a risk worth taking, a 100% mortgage could be very useful.”

You can protect yourself from the risk of interest-rate rises by going for a fixed-rate deal.

The Davies family are buying a three-bedroomed terraced house in Paulton, Somerset, with a 100% mortgage from Accord. It is a three-year fixed deal charging 5.39%.

Nina, 31, who works for a design agency, said: “We thought we would have to put down a deposit until we spoke to our broker at L&C Mortgages, who said that we could borrow the entire amount. Now we can use our savings for stamp duty and other costs, and hopefully there will be some left over.

“That extra will be useful, as we are expecting a baby in May. I was initially a bit nervous about taking a 100% mortgage, but the property we are buying is in a good area and I think prices should rise there over the next few years.”

But you do pay a price for borrowing a property’s entire value. Melanie Bien at Savills Private Finance, a broker, said: “The rates tend to be higher on 100% deals and only a relatively small number of lenders offer them. So if you can put down a deposit, you will get a more competitive mortgage rate.”

The cheapest two-year fixed rate, 100% mortgage is from Portman building society at 5.35%, but if you had a 10% deposit you could fix for two years at 4.29% with Britannia building society.

The Britannia deal is available for loans up to 95%, but a higher-lending charge (HLC) is levied if you need to borrow more than 90%. This is an insurance policy that protects the lender if it has to repossess the property and is only able to sell it for less than the outstanding mortgage. Many lenders charge an HLC on loans above 90%.

Simon Tyler at Chase de Vere Mortgage Management, a broker, said: “Rather than just levying a fee on the amount you are borrowing above 90%, it is common for lenders to calculate it on the amount above 75%.”

Royal Bank of Scotland offers 100% mortgages but charges an HLC on loans above 95% of a property’s value. You pay 12% of the amount you are borrowing above 75%, so if you were taking out a £100,000 mortgage and had no deposit, the penalty would be £3,000.

Not all lenders levy these penalties. Those that do not include Northern Rock, Scottish Widows, Bristol & West, Mortgage Express, Coventry building society and Portman. All these, bar Portman and Bristol & West, will lend more than 100%, giving borrowers extra to spend.

Scottish Widows will let graduates borrow up to 102% of a property’s value and those in certain professions — including doctors, solicitors, accountants and vets — can borrow up to 110%. Anything above 100% is charged at Scottish Widow’s standard variable rate, 5.94%, rather than the mortgage rate, which will be lower. Its base-rate tracker charges 0.75 points above base rate, currently 5.25%, or you can lock in for two years fixed at 5.29%.

Northern Rock lets homebuyers borrow up to 125% of a property’s value with its Together mortgage, so they can take £50,000 on top of a £200,000 property. The interest rate is the same on the whole loan but 95% is secured, which means if you miss payments the bank can claim your property. The remainder is borrowed on an unsecured basis, like a personal loan.

Ray Boulger at John Charcol, a broker, said: “Borrowing more than 100% can be useful if you are buying somewhere that needs renovating. These mortgages are also good if you have other debts because the interest rate is likely to be lower than you are currently paying, so you can use the extra to clear them.”

However, these mortgages will not suit everyone. Hollingworth said: “A 100% loan doesn’t allow you to borrow more, and in many cases it won’t be an option because you won’t have the salary to raise a big enough mortgage.”

Buyers are paying an average of £127,922 for their first home, according to Halifax. Assuming the lender will accept four times a single income and three times joint incomes, someone buying on their own would need to earn almost £32,000 to borrow all the property’s value. A couple would need a joint salary of about £42,500. In London, first-time buyers pay an average of £208,969 for a home, so a single borrower would need to earn £52,250 and a couple £69,650.

Some firms have more generous lending criteria. Northern Rock will sometimes lend up to 5.6 times salary — but if your earnings will not let you borrow the amount you need, raising a deposit will be the only way to get on the property ladder.

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