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Can you get a Mortgage Without a Deposit?

For many, the prospect of homeownership remains a distant dream. Savings for a deposit is a huge hurdle that can slow down, or completely stop, some people from ever owning a home. But can you get a mortgage without a deposit?

No deposit mortgages can offer a lifeline to individuals and families seeking to step onto the property ladder without the need for a hefty upfront deposit. In this blog post, we’re going to explain how to get a mortgage with no deposit, if these kinds of mortgages are any good, and look at some alternative options.

Whether you’re a first-time buyer, a renter contemplating your next move, or simply curious about the possibilities that lie ahead, join us as we delve into the realm of no deposit mortgages and illuminate the path towards achieving your homeownership aspirations.

 

What is a no deposit mortgage?

A mortgage without a deposit, also referred to as a 100% loan-to-value (LTV) mortgage, entails borrowing the full value of the property being purchased, without any upfront deposit required.

 

How much deposit is needed to buy a house?

Typically, lenders in Britain usually request a minimum 5% deposit to contribute towards the purchase of your home, necessitating a 95% loan-to-value (LTV) mortgage. However, a 100% mortgage enables you to borrow the entire property value from the bank or building society without any upfront payment required.

 

How do mortgage deposits work?

Property deposits are calculated as a portion of the property’s value, funded by your savings. The remaining sum is typically secured through a home loan or mortgage.

Typically, the minimum deposit requirement stands at 5%. For instance, if you were purchasing a £200,000 property, you’d need to accumulate £10,000. This would result in a mortgage with a loan-to-value (LTV) ratio of 95%, covering 95% of the property’s cost.

However, the more substantial your deposit, the higher your chances of mortgage approval and the lower the interest rate. For the same £200,000 property, you’d require £20,000 for a 10% deposit, £30,000 for 15%, and £40,000 for 20%.

The most competitive interest rates are typically reserved for those with at least a 40% deposit (60% LTV), equating to £80,000 for a property valued at £200,000.

 

Who can benefit from a 0% deposit mortgage?

A 0% deposit mortgage is typically aimed at those who are finding it hard to save up enough of a house deposit to buy a home. This may be people who have been hit with unexpected costs, wiping out their savings, or those who are just starting to save money but are looking to get a mortgage ASAP.

 

Are no deposit mortgages a good idea?

Andrew Bailey, the Governor of the Bank of England (BoE), has issued a cautionary note to both lenders and borrowers regarding the practice of borrowing at 100% loan-to-value (LTV).

However, are these apprehensions justified?

Bailey’s viewpoint likely stems from the concern that individuals opting for a 100% LTV mortgage may find themselves in a precarious situation in the future. Specifically, when their mortgage term expires in five years, they might not have repaid enough capital to qualify for a standard remortgage at a lower loan-to-value ratio.

Consequently, Bailey suggests that borrowers could become “trapped with mortgages for an extended period, unable to transition out of them.”

This scenario was evident during the financial turmoil of 2007/08 when some borrowers obtained mortgages of up to 125% of their home’s value—an astonishing figure by today’s standards.

When their mortgage terms concluded, they struggled to secure remortgage deals due to their high LTV ratios. Consequently, they were compelled to continue with their existing lenders, often at prohibitively high standard variable rates (SVR) that strained their finances.

Nevertheless, the regulatory landscape has evolved since then.

Lenders now operate under stricter regulations, including the obligation to Treat Customers Fairly (TCF).

This heightened regulatory environment places a spotlight on product transfers. These transfers allow clients who are unable to secure remortgage deals in the open market to switch to alternative products internally, without needing to provide proof of income.

 

How can you get a 0% deposit mortgage?

While uncommon in the UK, it remains feasible. The availability of 100% mortgages significantly diminished in the aftermath of the 2007-2008 financial crisis. 

 

However, in May 2023, Skipton Building Society introduced its 100% LTV mortgage option, aimed at assisting first-time buyers transitioning from renting to homeownership.

 

You can contact us  to speak to one of our advisors to see what options are available to you.

 

100% mortgages and guarantor mortgages

Another option to consider instead of 100% mortgages are guarantor mortgages, wherein a family member (or friend) who owns their own property is typically required to be included on your mortgage agreement. This individual must consent to covering any missed repayments, and they have two options:

  1. Using their own property as security: Your mortgage provider would place a charge on your guarantor’s property, enabling them to recover funds or potentially repossess their property if you fall significantly behind on your mortgage payments.
  2. Using their savings as security: Your guarantor deposits a lump sum into a savings account held with the mortgage provider, serving as collateral. These savings cannot be accessed by the guarantor until you have paid off a predetermined percentage of your mortgage.

By opting for a guarantor mortgage, your guarantor exposes their own property or savings to risk should you fail to meet your repayment obligations punctually.

What are the advantages of 100% mortgages?

The main advantage of a 100% mortgage is that you can buy a property without the need for a deposit. This can help you save time on having to spend years savings up a percentage of the value of the property as a deposit.

 

What are the disadvantages of 100% mortgages?

There are various drawbacks associated with no deposit mortgages. Firstly, if you opt for a guarantor mortgage, you’ll require a friend or family member to serve as a guarantor, ideally someone with a strong credit history and sufficient income. It’s crucial to bear in mind that depending on the terms of the agreement you choose, your guarantor’s savings or property may be placed at risk.

Another downside is that 100% mortgages typically come with higher interest rates compared to mortgages that necessitate a deposit. Additionally, application fees tend to be higher, and you’ll often incur a higher lending charge – a fee levied for borrowing with a minimal (or no) deposit.

A third issue arises if the value of your property depreciates. This could result in negative equity, where the outstanding loan amount secured on your property exceeds its current value.

While this may not pose significant problems if you can continue to meet your mortgage payments, it becomes problematic if you decide to sell. In such a scenario, you could find yourself responsible for covering the shortfall between the property’s value and the outstanding loan amount, potentially restricting your ability to relocate.

It’s important to understand everything in detail before making a decision. A member of the Original Mortgage Company team can help explain everything to you, and advise on what would be best for you.

 

Are no deposit mortgages cheaper?

No deposit mortgages in the UK also incur similar fees, interest charges, and other expenses like any other mortgage.

Securing a zero deposit mortgage is notably more challenging, and even if approved, there’s a potential risk of entering negative equity, whereby the property’s value is less than the outstanding mortgage debt.

 

Are zero deposit mortgages risky?

There is some risk involved with zero deposit mortgages, particularly if property prices began to decline. For instance, consider a scenario where a property purchased with a 100% mortgage for £100,000 sees its value decrease to £90,000. In this case, the property’s value is less than the outstanding mortgage debt.

If you were to sell the property, the proceeds might not be sufficient to fully repay the mortgage, resulting in remaining debt.

 

What to do if you can’t get a 100% mortgage

If you’re unable to get accepted for a 100% mortgage, our team can advise and help you find other solutions. Below are some of your potential options:

 

New build developer loans

At times, property developers may extend an offer to provide a loan covering a portion of the deposit required for purchasing a new home they’ve constructed.

For instance, the developer might offer to loan 20% of the property’s value, with repayment expected over a 15-year period.

It’s essential to ensure that you can comfortably manage both your mortgage repayments and the repayment of the loan from the property developer.

 

Help to Buy scheme

The Help to Buy scheme has ceased operations in England, Scotland, and Northern Ireland, but remains active in Wales until December 2025.

Help to Buy can potentially facilitate obtaining a mortgage with a modest deposit. It offers an equity loan that allows you to borrow funds for a deposit without accruing interest for a period of five years.

Subsequently, you contribute an additional 5% deposit from your own savings and secure a mortgage to cover the remaining purchase price.

 

Shared Ownership

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Shared Ownership mortgages enable you to purchase a portion of a property, typically ranging from 25% to 75%. The remaining share is owned by either your local authority or a housing developer, and you’ll pay rent on their portion of the property.

This arrangement results in a significantly smaller mortgage requirement and necessitates a reduced deposit.

For a shared ownership mortgage, the deposit typically falls between 5% and 10% of the value of the share you’re acquiring, rather than the entire purchase price.

 

First time buyer mortgages

Additionally, there are mortgages designed to assist first-time buyers in stepping onto the property ladder with a deposit of 5% or above. Although numerous 95% mortgages were withdrawn from the market during the peak of the Covid-19 pandemic, an expanding array of lenders is anticipated to reintroduce them, facilitated by the launch of the mortgage guarantee scheme in April 2021.

Under this scheme, the government pledges to reimburse lenders for a portion of any losses suffered if a borrower defaults on their mortgage payments, leading the lender to repossess the property.

 

Right to Buy mortgages

If you’ve resided in a council property for over 3 years, you might qualify to purchase it at a reduced rate.

The discount granted on your property could reach up to 70%, contingent upon the duration of your residency. Certain lenders may permit you to utilise this discount as your deposit.

 

Joint mortgages

Purchasing a property jointly enables you to pool your resources for a deposit. Additionally, you typically benefit from a combined higher income, potentially allowing you to share the burden of mortgage payments.

Alternatively, you may opt for a joint mortgage with a friend or family member keen on assisting you in stepping onto the property ladder.

 

Consider saving up a deposit

If none of the above options are suitable for you – there is always the option to hang fire and save a deposit. Our advisors can help you with best practices on how to manage your finances to save for a deposit in an efficient way.

 

How much can you borrow with a no deposit mortgage?

You have the opportunity to secure a no deposit mortgage for amounts of up to £600,000.

This borrowing limit is also constrained by your average monthly rent over the preceding 6 months and is further restricted by your income. Specifically, you’re eligible to borrow up to 4.5 times your annual salary (which can be combined with your partner’s income for joint applications).

For instance, if your average monthly rent has amounted to £1,000 over the past 6 months, you could potentially borrow slightly over £185,000, provided your annual income is at least £41,000.

It’s important to note that this calculation is predicated on a 35-year mortgage term. Opting for a shorter term might result in a reduced borrowing capacity due to larger monthly repayments.

 

What documents do you need for a no-deposit mortgage?

Here is the documents you’ll need to secure a no-deposite mortgage:

  • 12 months bank statements including proof of rent payments
  • Or a letter from your letting agent with confirmation (for those who pay cash)
  • General mortgage application work
  • Photographic ID

 

FAQs

Here are some of the most frequently asked questions we get when it comes to getting a mortgage without a deposit.

 

If you have a question we haven’t answered below – make sure to get in touch with our team so we can help you.

 

Can you get a mortgage without putting down a deposit?

Yes, it is possible to obtain a mortgage without the need for an upfront deposit. Such mortgages are commonly referred to as “no deposit mortgages.” With these types of mortgages, the lender provides the entire amount required to purchase the property, eliminating the need for a deposit from the buyer. 

 

However, it’s essential to note that eligibility criteria, terms, and conditions may vary between lenders, and borrowers should thoroughly research and understand the terms of the mortgage agreement.

Can you buy a house with a 5% deposit?

Yes, it is feasible to purchase a house with a deposit as low as 5% of the property’s purchase price. Mortgages requiring a 5% deposit are often available, particularly for first-time buyers. 

 

These mortgages, commonly known as “95% mortgages,” enable buyers to secure a loan covering 95% of the property’s value, with the remaining 5% covered by the deposit. However, borrowers should be aware that interest rates, fees, and eligibility criteria may vary, and it’s advisable to compare different mortgage options before making a decision.

What if you’re no longer renting, but you were recently?

If you have recently stopped renting and are now considering purchasing a property, your previous rental history may still be relevant to lenders. While not currently renting, lenders may consider factors such as your rental payment history, stability, and affordability when assessing your mortgage application.

 

Providing evidence of your rental history, such as rental payment records or a landlord reference, may strengthen your mortgage application and demonstrate your ability to manage housing-related expenses.

Are new builds included?

Yes, new build properties are typically included in mortgage options, including those with low deposit requirements. Many lenders offer mortgages specifically tailored for purchasing new build properties, often with competitive rates and flexible terms. 

 

Buyers interested in purchasing a new build property with a low deposit should explore mortgage options available from various lenders and consider factors such as interest rates, fees, and eligibility criteria before making a decision.

Can you make overpayments?

The ability to make overpayments on your mortgage depends on the terms and conditions of your mortgage agreement. While some mortgage lenders may allow borrowers to make overpayments without penalty, others may impose restrictions or charges for additional payments beyond the agreed schedule. 

 

It’s essential to review the terms of your mortgage agreement carefully and consult with your lender to understand any limitations or charges associated with making overpayments. 

 

Overpayments can potentially help reduce the overall interest paid and shorten the term of the mortgage, but borrowers should consider their financial circumstances and goals before making additional payments.

 

Securing the Best Option For You

Are you still wondering if you can get a mortgage without a deposit? In this post we’ve looked at some of the conditions for getting a 0% deposit mortgage, as well as some of the alternatives.

 

There are a lot of things to consider if you want to move ahead with getting a 0% mortgage, both advantages and disadvantages. Getting a mortgage is a huge commitment so it’s important to understand exactly what you’re getting into – and if a 0% deposit mortgage is actually the best option for you.

 

Our team is on hand to talk you through everything, and advise you on what would be best for your circumstances. Wether this is a 0% deposit mortgage, or an alternative option, we’ll help you to land the best deal possible. Contact us today to discover more.

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