No Deposit Mortgages
If you're facing the hurdle of accumulating a sizable deposit for your inaugural home purchase, navigating the property market might seem daunting. However, there exists a promising solution in the form of a no deposit mortgage, offering a viable route for many onto the property ladder.
Within this guide, we'll provide you with all the details surrounding this particular mortgage type and present an array of other options tailored to your specific needs. We’ll go over:
What is a no deposit mortgage?
A no deposit mortgage is characterised by the absence of any upfront deposit requirement, meaning you borrow the entire property's value for its purchase. For instance, if the property is priced at £200,000, your mortgage would be exactly the same amount.
The majority of lenders will ask for a minimum deposit of 5% towards the purchase of a home, necessitating a 95% LTV mortgage. However, with a 100% mortgage, you secure the entire property value from the lender without the need for any down payment.
How can you get a mortgage with no deposit?
In the aftermath of the 2007-8 financial crisis, the availability of no deposit mortgages significantly diminished. However, in a notable shift, the Skipton Building Society reintroduced this mortgage option in May 2023, marking a resurgence in accessible homeownership solutions devoid of deposit requirements.
Key details of this offering include eligibility criteria tailored to individuals who haven't owned a property in the past three years and possess a clean credit record. Moreover, applicants must demonstrate a consistent record of timely rental payments over the preceding 12 months, spanning an uninterrupted period of 18 months.
Under this scheme, borrowers are afforded the opportunity to secure financing of up to 4.49 times their annual salary, with a capped property value not exceeding a total of £600,000. Additionally, the maximum term for repayment extends to 35 years, provided all payments are made punctually.
Can I get a no deposit mortgage?
Approval for a no deposit mortgage is more likely if you have a good to excellent credit score, maintain low levels of debt, and enjoy a stable income stream. This is because lenders require sufficient evidence of your ability to meet monthly repayments. If they don’t feel that your financial profile matches their criteria, then they will reject you.
It’s notable that being rejected leaves a mark on your credit report, to get an idea of your current financial health before applying you can use our free credit check tool (£14.99 per month after the free 30-day trial). Using it will help you spot possible mistakes and fraudulent activity so that you can keep on top of any problems without delay. The trial and subscription can be cancelled at any time.
Advantages of no deposit mortgages
Renter-Friendly Eligibility: Designed for renters with a verified minimum 12-month rental history, meaning accessibility for those transitioning from renting to owning.
Zero Upfront Deposit: Eliminates the need for an initial deposit, saving you a substantial amount of time and simplifying the mortgage application process.
Stable Payments: Provides the benefit of fixed mortgage payments over a 5-year period, allowing for better budgeting with consistent monthly payments.
Disadvantages of no deposit mortgages
Elevated Interest Rates: Without a deposit, you may encounter higher interest rates, potentially increasing the overall cost of your mortgage.
Increased Fees: The absence of a deposit could result in a more intricate mortgage application, leading to higher associated fees.
Negative Equity Risk: In the event of your property's value depreciating below the outstanding mortgage balance (negative equity), the absence of a deposit means you lack a financial buffer to offset potential losses.
Limited Lender Options: Currently, only the Skipton Building Society offers no deposit mortgages, limiting your choice of lenders for this specific type of mortgage.
Can you get a no deposit buy-to-let mortgage?
No, obtaining a no deposit buy-to-let mortgage is not possible. This is due to the fact that the criteria buy-to-let mortgages are subject to is typically more stringent compared to residential loans. Consequently, securing approval without readily available funds becomes significantly challenging. Generally, most lenders require a 25% deposit for buy-to-let properties.
Alternatives to a no deposit mortgage
Guarantor mortgages
If you cannot get a loan from the Skipton Building Society, it’s worth noting that select lenders may provide no deposit mortgages with the assistance of a guarantor. In a guarantor mortgage arrangement, a parent, close family member, or trusted friend assumes some of the risks associated with mortgage borrowing by pledging to cover repayments in case the borrower defaults. This can be achieved by either using a property they own with available equity as collateral, or by depositing savings into a designated account to secure the loan.
New build developer loans
In certain cases, property developers extend loans to cover the deposit required for the purchasing of a new build. For instance, the developer might offer to lend you 20% of the property's value. Bear in mind that it's essential to ensure that you can comfortably manage both your mortgage repayments and the repayment of the loan provided by the property developer.
Shared Ownership
Shared Ownership mortgages enable you to purchase a portion of a property, usually ranging from 25% to 75%, while the remaining share is owned by either your local authority or a housing developer. Consequently, you'll pay rent on the percentage of the property they retain ownership of. This arrangement results in a smaller mortgage requirement and a reduced need for a large deposit. Typically, deposits for shared ownership mortgages fall within the range of 5% to 10% of the value of the share you're acquiring, rather than the entire purchase price.
Joint mortgages
Partnering with someone to purchase a property allows for shared savings towards a deposit. Additionally, pooling your resources often results in a higher combined income, enabling you to share the financial responsibility of mortgage repayments. Alternatively, you may opt for a joint mortgage arrangement with a friend or family member who is willing to assist you in achieving homeownership.
Right to Buy mortgages
Individuals who have resided in a council home for over 3 years might qualify to purchase it at a reduced price through a Right to Buy mortgage. The discount offered can be considerable, namely up to 70%, contingent upon the duration of your tenancy. Certain lenders may permit you to use this discount as your deposit towards the property purchase.
Save up for a deposit
If you're open to saving up and aren't in immediate need of purchasing a house, this option offers simplicity. Many lenders accept smaller deposits starting from just 5% for individuals with a clean credit history and stable income. Additionally, timing could work in your favour; a potential decline in house prices might increase the value of your savings when you're ready to make a purchase.
Talk to a broker who specialises in no deposit mortgages
While the availability of a no deposit mortgage presents an opportunity for renters facing obstacles in home buying, it's prudent to seek professional advice before proceeding, given that there are inherent risks associated with no deposit mortgages.
Consulting with a mortgage broker can help you assess whether a no-deposit mortgage aligns with your personal financial goals, or if alternative options instead better suit your individual circumstances.
We at The Mortgage Genie represent a team of specialist brokers who are proficient in no deposit mortgages and who have insights into lenders offering deals tailored for individuals lacking a hefty deposit.
If you're considering getting a mortgage with no deposit and want guidance on the best options for you, then be sure to give us a call at 01915809890 today. And why not see how much you could borrow up to right now by using our mortgage calculator?
This information is a guide only and should not be relied on as a recommendation or advice that any particular mortgage is suitable for you. All mortgages are subject to the applicant(s) meeting the eligibility criteria of the specific lender. You should make an appointment to receive mortgage advice which will based on your needs and circumstances.
