0% deposit mortgages without family support

Do you really want to get on the housing ladder but can’t make the figures work? Often, the monthly mortgage repayments are achievable, but coming up with the deposit you need to secure a mortgage can be an impossible task.

When this is the case, a 0% deposit mortgage can be the ideal solution. And you can do it by yourself, without needing to call on the ‘bank of mum and dad’ which, of course, isn’t an option for everyone.

In this article, our expert team of mortgage advisers at PIL Southampton explains how 0% deposit mortgages without family support work and what your options are.

What is a no deposit mortgage?

A no deposit mortgage, also referred to as a 0% deposit mortgage or a 100% mortgage, is a mortgage product that enables you to borrow 100% of the value of the property without having to come up with any money upfront. This means that your ‘loan to value’ (LTV) is 100%.

This type of mortgage isn’t that common, but can be a lifeline for people who don’t have the means to come up with a deposit.

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

With the majority of standard mortgages, you need to come up with at least 5% of the value of the property upfront. For example, if the house you are buying has a sale price of £300,000, your mortgage lender would need you to provide a £15,000 cash deposit.

The amount of deposit you can contribute has an impact on the interest rate you will pay on your mortgage repayments. We mentioned the loan to value before – typically, the lower the LTV ratio, the lower your interest rate will be as this makes the loan lower risk for your mortgage lender.

Can I get a mortgage with 0% deposit?

0% deposit mortgages used to be more commonly available than they are today but, after the financial crisis hit in 2008, most providers withdrew these products as being too high risk.

However, certain mortgage providers like Skipton Building Society and April Mortgages are both now offering a 0% deposit mortgage.

This has been enthusiastically welcomed by renters who have been frustrated by the fact that they have proved they can reliably make monthly payments over a long period, often paying rent that’s higher than a mortgage payment would be, but have been thwarted in their attempts to buy their own home, simply because they couldn’t provide a deposit.

Because of this, many people haven’t been able to benefit from the security of owning their own home and the potential to build equity for their future.

Are no deposit mortgages risky?

A no deposit – 0% deposit – mortgage can be a risky proposition if house prices fall. If, for example, you borrow the full £300,000 value of your home, and its value falls to £280,000, you are in a negative equity position and could be financially vulnerable. 

If you wanted to sell, you wouldn’t have the funds to pay off the total amount of your mortgage and would therefore be likely to be left with a substantial debt – £20,000 in this example, plus any related fees.

Things to think about

As we mentioned earlier in this article, taking out a 100% LTV mortgage means that, if house prices fall at any time during your mortgage period, you will owe more than your property is worth which could make it more difficult when it comes to remortgaging, or if you need to sell.

It’s also worth remembering that, although you are not having to come up with a deposit to buy your new home, you will need an amount of money upfront to pay for the associated costs involved with buying a home, like legal fees, surveys and moving costs. Depending on the value of your property, stamp duty may also apply.

Who can apply for a 0% mortgage?

You will generally need to have a strong credit rating to be successful with a 0% deposit mortgage application, and to have a stable income above a certain threshold, depending on your lender.

Let’s look at the application criteria and process set out by April Mortgages and Skipton Building Society. 

April Mortgages

To be eligible for a 0% deposit with April Mortgages, you will need to be a UK resident, aged no older than 70 (and no older than 80 by the end of the mortgage term) and have a minimum household income of £24,000.

The property you are applying for a mortgage on (or looking to remortgage) will need to be worth at least £75,000, and cannot be a new build or a flat.

You will need to have a good credit history, which the lender will assess through a credit search when you get to the Decision in Principle stage, and your application will go through a full underwriting and affordability review.

April Mortgages are available through mortgage advisers like PIL Southampton.

Skipton Building Society

Skipton’s 0% deposit mortgage is called a Track Record mortgage. This is because they use your track record of paying rent to work out how much you could borrow.

You can apply for this mortgage if you are at least 21 years old, if you haven’t owned a property in the UK in the past three years, and if you have not missed any payments on any loans or credit commitments within the past six months.

The Track Record mortgage is available for properties worth up to £600,000 across the UK, excluding Northern Ireland.

If you are a sole applicant, you will need to have paid 12 months’ rent consecutively, within the last 18 months.

If you are a joint applicant, which could be up to four people, you need to prove that all the rent has been paid either by one applicant or collectively, for 12 months in a row within the last 18 months. If you have been renting separately, you’ll need to prove that you have all paid your rent. 

Whether you are a sole or joint applicant, it is likely that you will need to show proof of payment of your household bills. 

How PIL Southampton can help you 

Our experienced, independent team of mortgages advisers is well equipped to support you through the mortgage application process. They make it their business to keep up to date on all current products available, 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.