Can I get a Mortgage with No Deposit?, by Matt Stevens
One of the hardest parts about getting onto the property ladder is gathering a sizable mortgage deposit. So, if you’re struggling to save and balance your finances, it will come as a welcome surprise that you can get a mortgage without a deposit.
No-deposit mortgages, or 100% LTV mortgages, were fairly common before 2008’s financial crisis, after which high street banks stopped offering such deals. Recently, however, they - and similar alternatives - have reappeared on the market. In this article, we’ll go over all the details and explain how to get a mortgage with no deposit.
What is a no-deposit mortgage?
As the name suggests, a no-deposit mortgage eliminates the need for the conventional upfront deposit usually required for a mortgage loan. These are often labelled as 100% loan-to-value (LTV) mortgages, signifying that the borrower is financing the entire value of the property being purchased.
In contrast to the standard practice of lenders wanting a deposit ranging from 5-10% of the property’s value (resulting in 95% LTV or 90% LTV mortgages), no-deposit mortgages provide an alternative financing option for those seeking to get around the traditional deposit requirement.
How do 0 deposit mortgages work?
Once approved for a 0 deposit mortgage, the repayment structure aligns with that of any standard mortgage. That is, monthly repayments continue for a specified period until the loan is entirely settled.
It’s essential to note, however, that zero deposit mortgages generally entail higher interest rates when compared to mortgages with lower LTV ratios. Consequently, your monthly payments will be higher than if you had provided a deposit. For perspective, mortgages with a 60% LTV offer the most competitive interest rates.
Who are zero deposit mortgages for?
Zero deposit mortgages are typically designed to assist households facing challenges in saving up for a traditional mortgage deposit. They serve as a great solution for individuals or families aspiring to become homeowners but who find it difficult to meet the customary expenses associated with home purchases.
How can you get a no-deposit mortgage?
As we mentioned, after 2008, no-deposit mortgages became virtually non-existent. This was the case up until the Skipton Building Society launched its Track Record Mortgage in May 2023 in order to help first-time buyers who are currently renting obtain a home.
As we mentioned, no-deposit mortgages all but disappeared after the financial crisis of 2008. This was the case up until a notable shift occurred when the Skipton Building Society introduced the Track Record Mortgage in May 2023. This initiative aimed to assist first-time buyers who were currently renting in achieving homeownership.
Alternatives to no-deposit mortgages
If you don’t meet the eligibility criteria for Skipton Building Society’s Track Record Mortgage, then this doesn’t necessarily mean you can’t get a mortgage without a deposit. Here are some worthy alternatives.
Guarantor mortgages serve as a primary alternative for individuals seeking a 100% mortgage when traditional avenues are unavailable. In this arrangement, a family member or friend co-signs your mortgage, necessitating a robust credit history and substantial income on their part.
Under this agreement, the guarantor commits to covering any missed monthly repayments, using either their own property or savings as collateral. It's crucial to recognise that by taking on this responsibility, the guarantor exposes their own home to the risk of repossession or the potential loss of their savings should the borrower fail to meet monthly repayments promptly.
Joint mortgages enable a group of up to four individuals to collectively buy a house, leveraging their combined income and deposit. This collaborative approach significantly eases the burden of saving for the required deposit.
These arrangements can involve friends, family members, or partners. However, akin to guarantor mortgages, if one participant falls behind on repayments, the others are obligated to cover the deficit.
Rather than buying an entire property, shared ownership mortgages offer the option to purchase a percentage of a home, typically ranging from 25-75%, while the remaining portion is owned by either your local authority or a housing developer.
As a result, you only need to pay rent on the specific portion of the property you've acquired. This not only results in a smaller mortgage, but also alleviates the need for a sizable initial deposit.
Right to Buy
For individuals residing in a council home for over 3 years, the Right to Buy scheme presents an opportunity to purchase the property at a discounted price.
The discount, which may reach up to 70% of the property's total value, is determined by the duration of your residency. Significantly, some lenders accept this discount as a valid contribution, allowing it to serve as your deposit.
Can I get a zero deposit mortgage?
Qualifying for a zero deposit mortgage hinges on your individual situation and financial standing. The availability of no-deposit mortgages diminished initially due to perceived risks, a stance still upheld by most lenders.
To secure such a mortgage, a key requirement is maintaining an excellent credit score. This is crucial to demonstrate a low likelihood of defaulting on the loan by consistently meeting monthly repayment obligations.
If you want an idea of where you’re at financially before applying for a mortgage, then you can use our free credit check tool (£14.99 per month after the free 30-day trial). Using it will help you to spot possible mistakes and instances of fraudulent activity on your record so that you can address any problems as soon as possible. The trial and subscription can be cancelled at any time.
Pros of 100% mortgages
Eliminates the Need for a Deposit: By requiring no upfront deposit, you save money that would have otherwise been spent on rent.
Swift Entry into Property Ownership: Enables you to swiftly enter the property market, capitalising on potential house price increases over time.
Potential Cost Savings: In certain regions, particularly in the North East or Scotland, mortgage repayments may prove to be more economical than renting.
Equity Accumulation: Facilitates the accumulation of equity, providing the opportunity to remortgage for a more favourable deal once your mortgage term concludes.
Cons of 100% mortgages
Elevated Interest Rates: No-deposit mortgages normally come with higher interest rates, potentially resulting in increased long-term costs.
Risk of Negative Equity: If property values decline, there's a risk of entering negative equity, where your home's value is less than your outstanding mortgage. This situation may restrict your ability to move unless you can bridge the financial gap.
Strain on Relationships: Opting for a guarantor puts your family member or friend at risk, potentially straining your relationship if financial challenges arise.
Increased Approval Difficulty: Securing approval for a 100% mortgage can be more challenging, given the perceived higher risk involved.
Consider a 95% Mortgage
While saving for a deposit, particularly in today's tricky economic landscape, can be a formidable task, opting for a 95% mortgage becomes a viable alternative when a 100% mortgage is elusive.
In comparison to no-deposit mortgages, those requiring a 5% deposit remain highly accessible for individuals who want to own a home but are facing challenges in securing a property. Additionally, saving this amount opens the door to mortgage products with more favourable interest rates and eliminates the necessity of obtaining a guarantor.
If the above doesn’t apply to you and you’re adamantly seeking a mortgage with no deposit, then we at The Mortgage Genie can help. We believe that there is a product on the market out there for everyone and we’re fully prepared to assess your case in order to match you with a suitable lender. If you’re interested, then get in touch with our team of expert mortgage brokers by calling 01915809890 today. And why not see how much you could borrow by using our mortgage calculator right now?