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- What is a no deposit mortgage?
- How do 100% mortgages work?
- Can you get a mortgage with no deposit?
- Getting a 100% mortgage with a guarantor
- Pros and cons of no deposit 100% mortgages
- Can you get a first-time buyer mortgage with no deposit?
- Who offers 100% mortgages in the UK?
- What are the benefits of having a deposit?
- What are the alternatives to a no deposit mortgage?
- No deposit 100% mortgage FAQs
If it’s proving difficult to save a deposit for a home, a no deposit mortgage is a potential option where you don’t have to put any money down upfront. Read on to learn more about these 100% mortgages you can get with no deposit, including the different types available and their pros and cons.
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What is a no deposit mortgage?
A no deposit mortgage involves borrowing the entire purchase price of the property you’re buying. So if the price of the home you want to buy is £200,000, you would need a mortgage for £200,000 without a deposit to put down.
No deposit mortgages may also be called zero deposit mortgages, deposit free mortgages, 100% mortgages, or 100% loan-to-value mortgages. Your loan-to-value (LTV) is the mortgage amount you need to borrow expressed as a percentage of the value of the property you’re buying. So having no deposit means you need a 100% LTV mortgage that covers the full value of your home.
How do 100% mortgages work?
In some respects, no deposit mortgages work in much the same way as any other type of mortgage. Monthly repayments will need to be made for the duration of a specified term. You may be able to take a fixed-rate mortgage, where your monthly repayments remain unchanged for a set period of time, or a variable rate mortgage, such as a tracker mortgage, where your payments could rise or fall.
However, without a deposit you can expect to pay higher mortgage rates than if you had some funds to put down. The usual costs associated with home buying, such as stamp duty, legal and valuation fees, and other mortgage fees, must also still be paid. Importantly, in most instances, you’ll need the backing of your family or a close friend to get a 100% mortgage too.
» MORE: See current mortgage rates
Can you get a mortgage with no deposit?
It may be possible to get a mortgage without a deposit but the options available are relatively limited. Most no deposit mortgages require you to have a guarantor who is willing and able to step in should you fail to make your mortgage repayments. Family members will typically take up this role, or sometimes a close friend. But in doing so, their own home or savings will be at risk if you fall behind with repayments on a guarantor mortgage.
Skipton Building Society offers a 100% mortgage that doesn’t need the support of a guarantor. The Track Record Mortgage is designed specifically for tenants who want to take their first step onto the property ladder. Your monthly mortgage repayments cannot be higher than your average monthly rent over the previous six months.
» MORE: Best mortgage lenders
Getting a 100% mortgage with a guarantor
As mentioned, most lenders will require you to have a guarantor to get a mortgage with no deposit. A guarantor mortgage can be set up in a few different ways, depending on how your family or friend is willing to help you out. This will involve offering either their property, their savings, or perhaps an element of both, as security for the mortgage you need.
Using property as security
If a guarantor puts forward their property as security for your mortgage, they promise your lender to make the mortgage repayments on your home if you can’t. In addition, if the situation arises where neither you nor your guarantor can pay what you should, and your home is repossessed, a lender could also order the repossession of your guarantor’s home if there is a shortfall on the mortgage you still owe after your home is sold. Despite taking on considerable risk for your benefit, a guarantor won’t own a share in your home.
Using savings as security
Alternatively, some guarantor mortgages allow a guarantor to put up savings as security rather than their home. These fall into two main categories:
Family deposit mortgages
With a family deposit mortgage, a guarantor is usually asked to make a deposit worth up to 20% of the value of your home into a savings account. The pot must then remain in place for a certain number of years or until a predetermined amount of the mortgage is paid off. Assuming your mortgage payments have been met, the guarantor will receive their money back, along with interest. However, if repayments are missed, the lender may hold onto the money longer, or even use it to cover what is owed if you default and the proceeds from the repossession and sale of your home don’t cover the outstanding mortgage.
Family offset mortgages
A family offset mortgage works in much the same way as a family deposit mortgage, but your guarantor won’t receive interest on the funds they have deposited. Instead, you won’t be charged interest on a part of your mortgage that is equivalent to the sum your guarantor has set aside, helping to lower your repayments.
Pros and cons of no deposit 100% mortgages
Advantages of no deposit mortgages
- You have the chance to get on the property ladder without needing a deposit.
- No deposit means significantly lower upfront costs.
- You could buy quicker than if you had to save a deposit.
- You’ll have the chance to build equity in your property, and potentially remortgage to a new deal in the future.
Disadvantages of no deposit mortgages
- The pool of available no deposit mortgages is relatively small.
- 100% mortgages are likely to be more expensive than a standard mortgage.
- Monthly repayments will be larger because you’re taking the biggest mortgage possible and interest rates tend to be higher.
- You’ll usually need a guarantor who is willing to use their property or savings as security for the mortgage.
- Your guarantor risks losing their home or savings if you don’t make your mortgage repayments when you should.
- Money put up by your guarantor could be inaccessible for a number of years and is unlikely to earn the top rate of interest. With a family offset mortgage, they’ll receive no interest at all.
- If house prices fall, there’s a greater risk of dropping into negative equity, where your outstanding mortgage is more than what your property is worth. This can make it difficult to remortgage or move homes.
» MORE: What is happening with UK house prices?
Can you get a first-time buyer mortgage with no deposit?
No deposit mortgages are often targeted at first-time buyers who are finding it difficult to save for a deposit. However, they may be open to other homebuyers too, including home movers and if you’re remortgaging.
Who offers 100% mortgages in the UK?
There are a handful of lenders that offer 100% mortgages if you have a guarantor, including Barclays, Halifax and Lloyds Bank. If you’re currently renting, Skipton Building Society offers a 100% mortgage that doesn’t require a guarantor.
If you’re struggling to find a suitable deal, you could consider using a mortgage broker, who may have access to mortgages that you can’t get direct, and know which lenders offer the best chance of success.
» MORE: Getting mortgage advice
What are the benefits of having a deposit?
You will probably stand a better chance of getting a mortgage, and a better rate, if you have a deposit. There are more mortgage options if you have at least a 5% deposit to put down and can get a 95% LTV mortgage or perhaps lower. And the more you can save, the better, because mortgage rates tend to be lower the higher your deposit is.
It follows that your monthly repayments should be lower, and you’ll pay less in interest overall. This is because you’re borrowing a smaller amount, and also because you’ll hopefully get a better deal. Having a deposit also means you shouldn’t need to rely on a guarantor to get a mortgage. The risk of falling into negative equity if there’s a fall in property prices is lower too.
» MORE: How much do you need for a house deposit?
What are the alternatives to a no deposit mortgage?
If you can’t get a no deposit mortgage, there are other options which may help you onto the property ladder, particularly if you can raise a smaller deposit.
Shared Ownership
Under the Shared Ownership scheme you buy a percentage of a property, and pay rent on the part that you don’t own. Importantly, this means you need a smaller mortgage, and a deposit for between 5% and 10% of the share you’re buying, rather than the full property value. Shared ownership rules may differ depending on where you buy in the UK.
Help to Buy
The Help to Buy equity loan scheme, designed to help buyers with smaller deposits, is still available in Wales, but not in England, Scotland and Northern Ireland.
Forces Help to Buy
Under the Forces Help to Buy Scheme, eligible members of the Armed Forces can get an interest-free loan for up to 50% of their salary to use as a deposit or cover other costs. The most that can be borrowed is £25,000.
First Homes scheme
With the First Homes scheme, eligible first-time buyers and key workers in England may be able to buy a new-build property at a discount of up to 50%. The deposit needed is based on the discounted price you pay.
Right to Buy
If you’re a council tenant in England, the Right to Buy scheme may allow you to buy the property where you live at a discount. Certain lenders may be willing to take the discount as the deposit for a mortgage. Similar schemes are available in Scotland, Wales and Northern Ireland, while there’s a Right to Acquire scheme for housing association tenants.
Deposit Unlock scheme
The Deposit Unlock scheme offers first-time buyers and home movers the opportunity to buy a new-build property with only a 5% deposit. You’ll need to buy from a home builder that is participating in the scheme and take a mortgage from a lender that is taking part, too.
New build developer loans
Some property developers offer loans to buyers to cover the cost of a deposit for a new build property. Crucially, you’ll need to pay the loan back alongside your usual mortgage repayments.
Lifetime ISAs
A Lifetime ISA is designed to help you save for a deposit. If you’re eligible, up to £4,000 can be saved into these tax-free accounts each year, with the government adding a 25% bonus of up to £1,000 a year.
A gifted deposit
Rather than being a guarantor, a family member or close friend may prefer to give you the money for a deposit instead. You must tell your lender you have a gifted deposit, and may need a letter from whoever gave you the money confirming they do not expect you to pay it back.
Joint mortgage
Taking out a joint mortgage with a partner, family member or friend and pooling your finances could help you raise a larger deposit and improve your chances of being able to buy.
» MORE: Buying a house with a friend
No deposit 100% mortgage FAQs
It is possible to get a 100% mortgage but most require you to have a guarantor who is willing to step in and make your mortgage payments if you don’t. Some may allow a family member or friend to put savings down as a deposit on your behalf.
No deposit mortgages may allow you to get on the property ladder if you can’t raise a deposit. However, these mortgages can be relatively expensive, there’s a greater chance of falling into negative equity, and you’ll usually need a family member or friend to offer financial support and take on financial risk themselves.
You may be able to apply for a 100% mortgage directly with a lender or you could use a mortgage broker. Getting a 100% mortgage involves all of the eligibility and affordability checks you’d expect to see on any mortgage, but there’s likely to be added requirements. If you’re buying with the help of a guarantor, lenders will run affordability and credit checks on them, too.
You may be able to get a 100% mortgage if you have poor credit, but it’s unlikely. With any type of mortgage, it’s easier to get approval if you have a good credit score. You would almost certainly need a guarantor to stand any chance.
Many banks and building societies offer 95% mortgages if you can put down a 5% deposit. These low deposit mortgages can be available to first-time buyers and home movers.
It may be possible to use a personal loan for a deposit, but most mortgage lenders won’t allow it. If you find a lender that does, remember you’ll need to repay both the loan and your mortgage at the same time. You will have to prove to the mortgage lender you can afford to pay both, too.
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