0% deposit mortgages with family support

We often hear about the term ‘relying on the bank of mum and dad’. If you are looking to buy your first home and you don’t have the means to come up with a deposit, but you have parents or other close family members who are in a position to help you financially, there are specific 0% deposit mortgages available that could be a good option for you.

In this article, our experienced team of independent financial advisers at PIL Southampton talks through what you need to know about this type of product and how family support can help. 

What is a no deposit mortgage?

As the name suggests, a no deposit mortgage requires no deposit upfront. It is also known as a 100% mortgage, or a 0% deposit mortgage, and it enables you to buy a home with your mortgage lender providing the entire purchase price.

How much deposit do you usually need to buy a house?

Usually, a mortgage lender will need you to provide at least a 5% deposit, therefore loaning you a 95% mortgage. Generally, the more deposit you can come up with – giving you a lower ‘loan to value’ (LTV) ratio, the more competitive the interest rate will be as it makes the loan lower risk to the mortgage lender.

Most lenders apply a sliding scale of interest rates – the most attractive interest rate applies to a mortgage with at least a 40% deposit.

Can I get a mortgage with 0% deposit?

This type of mortgage product was practically impossible to find after the financial crisis that hit in 2008. Now, although they aren’t widely available on the high street, certain mortgage lenders do offer mortgages that don’t require any deposit at all. 

Are no deposit mortgages risky?

0% deposit mortgages are considered riskier than those that have a deposit because, if the value of your house falls, you are immediately in a negative equity position which means that you owe more money than your property is worth. 

This would mean that, if you choose to sell your property, you wouldn’t be able to pay off your whole mortgage from the sale of the property alone. Instead, you would be left with a debt to repay.

Mortgages available with family support

Barclays has a product called the Family Springboard Mortgage, specifically designed for first time buyers who are unable to come up with their own deposit, but who have family members or friends that are in a position to help.

How it works for home buyers

The buyer owns the property, with a mortgage taken out in their own name, using their family or friend’s savings to do so. Because your helper provides 10% of the value of the property as security for five years, you can borrow the full purchase price of your home. You can choose a fixed rate for five years, giving you the security of knowing what your mortgage payments are going to be, and you can borrow over a longer term of 35 years which will make your monthly payments more affordable. 

How it works for helpers

Being a ‘helper’, who puts 10% of the friend or family member’s property purchase price into a Helpful Start savings account as security on their mortgage, earns them an attractive rate of savings for the agreed term. They can open multiple Helpful Start accounts, enabling them to help more than one family member or friend. Helpers don’t have any legal rights to the property.

After the agreed period, which is usually five years, the funds held in the account, and the interest earned, is returned to the helper. 

Beverley Building Society offers the Property Assist Mortgage, which allows them to lend 100% of a property’s purchase price for first-time buyers. They do this through parents, step-parents, grandparents or siblings who have equity in their own home. This mortgage is not available for interest-only mortgages, new builds, Right to Buy, shared equity or shared ownership properties.

The property charge is released either when the borrower’s mortgage debt has been repaid in full or when the borrower or helper has requested this in writing, any time after eight years of the mortgage term starting. Conditions apply.

How it works for home buyers

The first-time buyer takes out a mortgage in their own name which means that they own the property. They must be aged over 18, be a UK resident buying in England or Wales and have enough income to afford the monthly mortgage payments. 

How it works for helpers

The helper agrees to some of the equity in their own home being used as security for the first-time buyer’s mortgage. They do this by giving a ‘legal charge’ for an amount of equity that equals 20% of the value of the property being purchased. The total of the legal charge, combined with any outstanding mortgage on the helper’s own home, must not exceed 50% loan to value (LTV). The helper has no legal right to the property they are helping to buy. If the borrower’s house is sold for less than the mortgage value, the helper is responsible for making up the shortfall while charge is in place. Their liability is limited to the amount of the security.

How PIL Southampton can help you 

Our independent team of expert team of mortgages advisers is helping home buyers to secure mortgages every day. They are abreast of all mortgage products available in the market and they use this knowledge, coupled with all the information about your financial situation they gather with you, to help them to give you the best advice to suit your personal circumstances.

How you can contact PIL Southampton

You can email us, fill out the contact form on our website or call us on 02380 668407. We look forward to hearing from you.