What are no-deposit mortgages?

  • No-deposit mortgages are designed for customers, often first-time buyers, who want to borrow 100% of a property’s value

  • These are hard to come by and won't suit everyone, so read on for more guidance

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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 most first-time buyers in need of a 100% LTV mortgage will need some form of guarantor mortgage.

There is one exception on the market at the moment, which is the Skipton 100% mortgage 'Track Record'. This does not require a guarantor as affordability is gauged by maintaining prompt rental payments for at least 12 months prior to your application.

Can I get a mortgage without a deposit?

You certainly can get mortgages without needing to save a deposit, but your options will be far more limited than if you did have a deposit. Whether or not you should, however, 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 property value falls to £240,000, you'll still owe £250,000 for it, so more than it’s worth - this is 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?

  • 1.

    Skipton Building Society Track Record mortgage

  • 2.

    Guarantor mortgages

  • 3.

    Family assisted mortgages

With family assisted and guarantor mortgages both the applicant(s) and the guarantor(s) will usually undergo;

  • A credit check

  • A full income and affordability assessment

  • They will likely also need to meet addition criteria, which varies by lender and product, but could include a lower maximum LTV, minimum income etc

What is a guarantor mortgage?

A traditional guarantor mortgage is where the guarantor agrees to pay your mortgage if you become unable to. They also provide security for the loan, which is usually in the form of:

  • Their home: Which they will likely need to hold at least 25% equity in if they don't own it outright. As the loan is secured on their home, it's important that they understand that the risk of repossession of their home as well as yours, 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 - 'enough' is determined by the individual 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 essentially a more modern type of guarantor mortgage that are intended to be less risky to the guarantor. There are multiple products available from different lenders, all of which work slightly differently and have different terms and criteria. However, they will usually work in one of the following ways:

  • A family member puts a sum of money - often 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 interest on the remaining 80% - reducing the monthly repayments

  • 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 provided a 10% deposit yourself. You then pay guarantor's mortgage off over the first five years, and the remaining 90% over an agreed longer 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 - which is helpful for first-time buyers

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

  • It's typically less risky to the guarantor than a traditional guarantor mortgage

Are there any other deposit-free mortgage options?

There are a few ways to take out your first mortgage with no deposit, or a smaller deposit than would typically be needed, such as:

Joint borrower, sole proprietor mortgages (JBSP)

This is where you 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 is used to aid affordability more broadly, not necessarily to replace your deposit.

For example, if your income doesn't quite cover the repayments on the mortgage for a suitable home, the joint borrower agrees to cover any shortfalls for a set period of time.

Gifted deposits

If you're lucky enough to have someone willing to gift you a deposit, most lenders will accept this, so long as the gifter is willing to sign a waiver confirming they won't require repayment. There are some tax implications for both the gifter and applicant to consider, so be sure to take relevant tax planning advice before choosing this option.

If you don't have the option of using 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. Here are a few examples:

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. This is available for first-time buyers and those not able to afford a suitable home with a traditional mortgage.