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No deposit mortgages

No deposit mortgages give you a 100% Loan to Value ratio (LTV). They are relatively rare today, although you can get mortgages without a deposit if you have someone willing to act as a guarantor.
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No deposit mortgages

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What are no-deposit mortgages?

No-deposit mortgages are designed for customers who want to borrow 100% of a property’s value, usually because they are not in a position to save a deposit. According to the latest mortgage statistics, zero deposit mortgages contribute to around 0.2% of the current mortgage market.

Although zero-deposit mortgages (also known as 100% mortgages) were relatively common prior to the financial crash in 2008, they are no longer available as a stand alone product. Stricter affordability rules were introduced in 2014 to prevent another financial collapse, meaning lenders were less able to offer deposit free mortgage options. 

Most lenders now ask for a deposit of at least 5%, so the only option for anyone in need of a 100% LTV mortgage is a guarantor mortgage. This is a mortgage supported by someone in a more stable financial position, who will secure the loan using their own home, or savings. 

It’s sometimes possible to borrow 100% of the value of a home, although strictly zero deposit is slightly misleading, as the guarantor will be using some form of asset as security, essentially playing the same role as a deposit.

Why can’t I get a no-deposit mortgage?

In the early 2000s, mortgages of this kind were quite common. Some lenders even offered 125% LTV mortgages aimed at first-time buyers who wanted to consolidate credit cards or loans into their mortgages. 

However, when house prices fell, and borrowers started defaulting on their loans, the banks couldn't balance their books, triggering a global banking crisis and a much more cautious approach to mortgage lending.

Should I get a mortgage without a deposit?

Whether or not you go for any particular type of mortgage will depend on your individual circumstances, and it’s best to speak to a qualified mortgage broker for advice, especially if you’re planning to buy your first home. 

It’s certainly a suitable option for people in certain circumstances, although it’s important to understand that without a deposit mortgage, it’s much easier to fall into negative equity. 

What is negative equity, and why is it more likely with a 100% mortgage?

Negative equity is where you owe more on your mortgage than your home is currently worth. This is typically caused by a fall in house prices, and can happen whether or not you have a deposit, especially if house prices drop significantly. When you borrow the full value of your home, it’s easier for this to happen.  

For example: when you buy a house worth £250,000 using a zero deposit mortgage you have therefore borrowed the full £250,000. If a few months after you buy it there’s a dip in the property market and the property value falls to £240,000, you will owe more than it’s currently worth, putting you into negative equity. 

Paying a deposit gives you an immediate stake in your property. This means that so long as the value does not fall by more than 5%, you could avoid negative equity. This would leave you the option to sell up if the monthly repayments become unmanageable.

For example: if you had bought the same house with a 5% deposit (£12,500) instead, your property would still be worth more than your mortgage for the time being, as you will only have borrowed £237,500. 

Can I get a mortgage without a deposit?

There are still a few options for people who need a 0% deposit mortgage; 

  • Guarantor mortgages

  • Family assisted mortgages (which vary slightly in name and terms from one lender to the next) 

These mortgages require a guarantor, which means that both the applicants and the guarantor will need to meet certain criteria in order for you to qualify for the loan. This usually involves: 

  • Credit searches

  • Assessment of income (at least three months worth of payslips and bank statements, or proof of self-employed income)

  • Your debt to income ratio to see how much you can actually afford, as income will be balanced against outgoings

Every lender and mortgage product has its own set of criteria, so there may be additional requirements to the above. As with any type of mortgage, a high credit score, straightforward income, and healthy amount of expendable income each month puts you in the best position. 

With guarantor mortgages, however, the guarantor’s income is considered alongside your own when it comes to affordability. This can make it easier for those on a low income to qualify for a larger loan, as well as a deposit-free mortgage. 

How to get a no-deposit mortgage

To get a 100% LTV mortgage you’ll need a reliable guarantor. Depending on the type of mortgage, and the lender’s criteria, the type of person who can act as guarantor for your mortgage will vary. 

Some lenders prefer immediate family members only, whereas others are happy to accept more distant relatives and even friends and colleagues, in some circumstances. 

How do guarantor mortgages work?

A guarantor mortgage provides a guarantee to the lender that they can recoup their losses if you’re unable to afford the mortgage repayments. This will make them more likely to offer a zero deposit mortgage. 

A guarantor must agree to pay your mortgage repayments in the event that you are unable to. They will also have to provide some form of security for the loan, which could be:

  • Their own home - they could potentially lose their home if you default on your mortgage repayments and they are unable to make the repayments either. They will also need to own a significant amount of equity (percentage that they own compared to the current value) in their home. Some lenders will specify a minimum percentage of equity that must be held - which is often 25%

  • Their savings - another option is to place a certain amount (usually around 20% of the loan amount) of their savings into an account with the mortgage provider. They are unable to access this until you’ve paid off a predetermined percentage of your mortgage. They will typically earn interest on those savings, but the rates don’t tend to be the highest available 

Rules vary between mortgage providers and for different types of product, so it is important that both the borrower and the guarantor understands their responsibilities and the risks involved with the type of mortgage selected.

What are the risks of a guarantor mortgage?

The main risks involved in taking out a guarantor mortgage are:

  • Negative equity -  100% mortgage could leave you owing more than the property is worth if house prices fall

  • Guarantor risk - Your guarantor could lose his or her home (or savings) if you fail to make your mortgage repayments

You’ll also probably have to pay a higher rate of interest than on a standard mortgage, which will cost you more in the long run.

What is a family assisted mortgage?

Some banks and building societies offer family-assisted mortgages, which is a type of guarantor product. They tend to work in one of two ways:

  • A family member puts a sum of money, equivalent to a house deposit (20% of the purchase price) into a savings account that is offset against your mortgage, which lowers the interest you will pay

  • A family member allows the lender to take out a mortgage worth 10% of the amount you need to borrow on their home, meaning your mortgage is 90% LTV (loan to value). With this type of mortgage, you pay the 10% off over the first five years and the rest off over the agreed term (usually about 25 years)

Advantages of a family assisted mortgage:

  • It allows you to buy a property that you wouldn’t otherwise be able to afford, and without a deposit

  • Once you have paid off around 20% of your mortgage, your family member will get their money back in full – provided none of it had to be used to cover missed repayments

Disadvantages of a family-assisted mortgage: 

  • Savings in family-assisted mortgage offset accounts do not generally earn interest 

  • Like other low or no deposit mortgages, the interest rates tend to be higher than on market-leading mortgages

What other options are there for mortgage borrowers?

If you’re not lucky enough to have someone who can act as a guarantor for you, there are some other schemes designed to help people buy a property if they are struggling to save a deposit. We’ll look at some of these options below:

What is the government’s mortgage guarantee scheme

The mortgage guarantee scheme is not something that you specifically need to apply for, however, it is something that a range of lenders have agreed to take part in, as it allows them to offer low deposit mortgages with a government guarantee that they will not lose as much money if borrowers default. 

Those lenders observing the scheme can offer 5% deposits more confidently, however, there are lenders offering 5% deposits of their own accord too. It is available until 31 December 2022, so there may be fewer 5% deposit options available going forwards into 2023.

The government's Help to Buy Equity Loan scheme

*This scheme closed to applicants in England on 31 October 2022, but applicants in Wales should be able to apply until December 2022.*

The help to buy equity loan scheme was developed to make it easier for first-time buyers to get a mortgage by offering a governmental loan of up to 20% (40% in London) of the property price to be used as a deposit. You would need to add this to a minimum of 5% deposit that you had saved individually, therefore allowing you to get a 55-75% LTV mortgage. 

Lowering the LTV (Loan to value) of your borrowing not only makes it easier to qualify for the mortgage, it also opens up access to better interest rates. 

It's important to understand that the government will own an equity share in your new home - at least initially, until you’ve repaid the loan. You can compare help to buy mortgages here.

The shared ownership scheme

This government scheme allows homebuyers to buy a share of a property, rather than all of it. This means that they need a much smaller mortgage and can put up a far smaller deposit. 

Under the terms of the scheme, you then pay rent on the share that you don't own to a housing association. This will need to be paid at the same time as paying off your mortgage, so it’s important to understand the full costs involved. 

If you can afford to, you can increase your share in the property gradually over time through a process known as staircasing. You can compare shared ownership mortgages here.

Getting help from your family to buy a home

There are a couple of other ways your family may be able to help you get onto the property ladder if they are unwilling or unable to act as a guarantor, including:

Joint borrower, sole proprietor mortgages (JBSP)

This type of mortgage allows you to add applicants to the mortgage for the purpose of increasing your borrowing. You can have as many as four applicants’ incomes considered (joint borrowers) but be the only person that actually owns the property (the sole proprietor). 

Although you won’t necessarily be able to borrow 100% of the cost of the property you want to buy, this does increase your borrowing power, and helps people to purchase a property that they may not otherwise be able to afford. 

Gifted deposits and the potential tax implications

If you have a family member who can give you a gifted cash deposit, this can be a great way of avoiding having to limit yourself to zero deposit mortgages. 

There are some tax implications to consider when accepting a gifted deposit. For example, if the family member dies within seven years of giving you the cash, it could be subject to inheritance tax. 

Depending on how your family member raised the sum, it may also be subject to capital gains tax (CGT); if, for instance, they got it by selling a property or business, this could be interpreted as disposing of assets.

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