Although zero-deposit mortgages (also known as 100% mortgages) were relatively common prior to the financial crash of 2008, stricter affordability rules were introduced in 2014, meaning lenders were less able to offer deposit free mortgage options. 

Most lenders now ask for a deposit of at least 5%, so anyone in need of a 100% LTV mortgage will need a guarantor mortgage. There is one exception in the market at the moment, which is the Skipton 100% mortgage aimed at renters. 

Can I get a mortgage without a deposit?

You certainly can get mortgages without needing to save a deposit, but whether or not you should depends on your individual circumstances. Always speak to a qualified mortgage broker, especially if you’re buying your first home. 

A deposit-free mortgage is a suitable option for people in certain circumstances, but it’s important to understand that without a deposit mortgage, it’s much easier to fall into negative equity. 

What is negative equity?

Negative equity is where you owe more than your home is currently worth. Although this can happen whether or not you have a deposit, it’s more likely if you opt for a 100% mortgage.

If you buy a house worth £250,000 using a zero deposit mortgage, so borrow the full £250,000. Then a dip in the property market, means the value falls to £240,000, you'll owe more than it’s currently worth - so are in negative equity. 

If you put down at least a 5% deposit (£12,500), so long as the value does not fall by more than 5%, you could avoid negative equity.

What types of no-deposit mortgage are there?

You can either opt for the one actual 100% mortgage from Skipton Building Society, if you qualify for it. Or there are some other options for people who need a 0% deposit mortgage; 

• 1.

  Guarantor mortgages

• 2.

  Family assisted mortgages

Both types of mortgage essentially requires a guarantor. This means that both applicants will usually have to undergo;

• A credit check

• Income and affordability assessment

• As well as meet addition criteria, which vary by lender and product

What is a guarantor mortgage?

A guarantor agrees to pay your mortgage if you become unable to. They will also have to provide security for the loan, which is usually

• Their home: They'll likely need to hold at least 25% equity in it if they don't own it outright. As the loan is secured on their home, it's important that they understand that they could lose it if you default on your mortgage repayments and they cannot cover them

• Their savings: - Lenders usually ask for around 20% of the loan amount (so the equivalent of a deposit) to be placed into the mortgage account. The guarantor is unable to access these savings until enough of the loan has been repaid - this is determined by the lender

What are the risks of a guarantor mortgage?

The main risks are:

• Negative equity

• The guarantor could lose their home or savings

• Interest rates are typically higher on this type of product

What is a family assisted mortgage?

Family-assisted mortgages are really a more modern type of guarantor mortgage that work in a slightly different way - but still essentially offer the lender a guarantee. There are multiple products available, all of which work slightly differently, but usually involves one of the following:

• A family member puts s deposit sized sum of money - around 20% of the purchase price - into a savings account. This is then used to offset the interest on your mortgage, so you only pay it on the remaining 80%

• A family member takes out a mortgage worth 10% of the property value, so that you only need to borrow 90%. This is essentially giving you the same affordability as if you use a 10% deposit. You then pay the 10% off over the first five years, and the remainder over an agreed term

Risks and benefits:

• Savings in family-assisted mortgage offset accounts usually won't earn interest

• Interest rates are usually higher

• The family member cannot access their money for a defined period of time

• It aids affordability so you can either buy sooner, or afford a more suitable home

• Once you've repaid the deposit equivalent, the held money is returned to the family member that provided it

Are there any other deposit-free mortgage options?

If you don't have the option of a guarantor, there are some home ownership schemes designed to make it easier to get onto the property ladder, but you'll generally need a small deposit for all of them:

Help to Buy Equity Loan scheme

Only available in Wales, the help to buy equity loan scheme provides a government loan of up to 20% of the property value. You add this to a minimum of 5% deposit, giving you a 25% deposit in total.

This lowers the LTV (Loan to value) of your borrowing, making it easier to qualify for and usually giving you access to better interest rates. 

The shared ownership scheme

This scheme allows prospective buyers to purchase a share of a property, so that they need a much smaller deposit. 

You pay rent on the remaining share to a housing association. Then, you can increase your share in the property gradually over time through staircasing, as and when you can afford to.

Joint borrower, sole proprietor mortgages (JBSP)

This is a type of mortgage, rather than a government scheme. However, you can add applicants to the mortgage affordability assessment, but they don't appear on the property deeds. This would usually be a parent or relative and it aids affordability if you struggle to meet the criteria alone.

Gifted deposits

Instead of being a guarantor for your mortgage, family members can also provide you with a a gifted cash deposit. This means you won't need to worry so much about negative equity or high interest rates, but can still buy sooner, rather than later.

If you're lucky enough to have someone willing to gift you a deposit, there are some tax implications for them and you to consider. Be sure to take relevant tax planning advice before choosing this option.