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If you are one of the many individuals who want to get on the property ladder, confident that you can reliably meet monthly mortgage repayments but you don’t have the means to come up with a deposit, this article is for you.
Here, our expert team of experienced mortgage advisers answers all your key questions.
A zero-deposit, or 0% mortgage, also referred to as a 100% mortgage, is a loan you take out to buy a home, borrowing the entire value of the home. If your home costs £200,000, you borrow the whole amount of £200,000.
Usually, a mortgage lender will require you to provide at least 5-10% deposit for a standard mortgage product.
You can provide as high a deposit as you are financially able to. A higher deposit means that you need to borrow less money, which will have a significant impact on your monthly repayments and the interest you pay over the term of the mortgage.
Also, the higher the deposit you put down, the more favourable the interest rates are that a lender is likely to offer you. This is related to the loan to value ‘LTV’ ratio.
A zero-deposit mortgage will be in the form of a guarantor mortgage or a family deposit mortgage. In both cases, someone – usually but not necessarily a family member – uses their own savings to help you to get a mortgage, or puts their own home up as security against your loan.
If a family property is used as security to enable you to get a 100% mortgage on your new home, the lender will put a charge of around 20% on the family property which will be released either when the new property’s mortgage is repaid in full, or after a certain period of time or when the mortgage is less than 80% of the property’s market value.
Alternatively, a family member’s savings can be used as a security for a first-time buyer, without having to gift those funds. Typically, the money is placed in a savings account for a set period, normally five years, and then released at that time if mortgage payments have been maintained.
Anyone who doesn’t have thousands of pounds of ready funds available to put down as a deposit, could benefit from the option of a 100% mortgage.
Yes, some high street banks and some less well-known providers do offer 100% mortgages. These types of mortgages come with strict conditions, involving the funds being guaranteed, to give the lender the best chance of protecting their investment.
Alongside these guarantor-based mortgages, newer products like track record mortgages are coming on to the market, which take into account the borrower’s proven ability to make consistent rental payments over a fixed period.
Skipton Building Society has, in fact, recently announced the launch of this kind of mortgage product that doesn’t require a guarantor. Instead, they ask for evidence of rental and household bill payments for at least 12 consecutive months. Read more about this product here.
We can’t predict the future but, at the time of writing, it is not possible to get a 100% mortgage without some form of guarantor either on the mortgage or through additional security, other than through Skipton’s Track Record mortgage, which only works for a small number of applicants.
Without a deposit it is too much of a risk for the lender and therefore not a commercially viable option for them.
Coming up with a deposit can be the biggest hurdle for many aspiring home owners. Being able to buy a home without a deposit can be a huge advantage to people who would otherwise not have the chance to get on the property ladder.
Depending on the state of the housing market, getting on the property ladder earlier, before you have had a chance to save a deposit, can be a wise investment if it means that you are a homeowner when house prices are rising and you get to benefit from the value of your asset rising.
Another benefit of taking on a mortgage is that your monthly repayments could be lower than when you were paying rent.
And, although interest rates are higher for 100% mortgages, once you have bought your home you will hopefully have the opportunity to build up equity and remortgage to a deal with a more attractive interest rate when your introductory mortgage deal ends.
Lenders are driven by the level of risk. The lower the deposit you put down, the higher the interest rate they will charge you. This means that zero deposit mortgages have relatively higher interest rates, compared to mortgages that have included a deposit.
It is also worth noting that not putting down a deposit makes your overall borrowing higher, which means that your monthly repayments will be higher.
And, as lenders generally lend around four times your salary, the calculation being based on the whole property value instead of the property value minus your deposit, means that the value of the property you are able to buy without a deposit will be lower than if you were putting down a deposit.
Another potential disadvantage is that a 100% mortgage gives you no buffer against falling property prices. You could quickly fall into a negative equity scenario, where the value of your home is less than your borrowing against it.
This could be an issue if you need or want to move at any time, or when your fixed term period ends and you need to remortgage; a lender will not approve a mortgage higher than the value of your home.
In most cases, the only way to get a 100% mortgage is with a guarantor’s involvement, and being a guarantor always comes with an element of risk.
This range of mortgage products has names like Family Assist, Family Boost, Property Assist and Family Springboard.
If your family has used their own property as collateral to guarantee your mortgage and you do not keep up your mortgage repayments, and they do not have the funds to support you with your repayments, their home could be repossessed by the lender who will be looking to get their money back.
This same predicament could befall your family member if they have used their home as security for a family deposit mortgage.
Yes, you have a range of other options you can consider, even if you can’t come up with a deposit.
Some new build developers offer loans to help buyers with the cost of buying their new home. This loan would need to be repaid alongside your mortgage repayments.
The government provides an opportunity for you to take a loan out specifically to fund the construction of your own new build property.
Another option is for a family member or family friend to gift you the money for a deposit. Known as a ‘gifted deposit’, this needs to be declared on a mortgage application.
To help you to save for a deposit, which then opens up a much wider range of options for you, at generally better rates, the Lifetime ISA (LISA) is a brilliant scheme – anyone between the ages of 18 and 39 can open one and, for every pound you save up to £4,000 a year, the government will add 25% to the amount for free.
This can add up to quite the bonus over the many years you have the chance to pay into your LISA. When you open your LISA, make sure you shop around for the best rate and, before you sign up, read up on the product so that you’re fully aware of the withdrawal rules and what you can use the money for.
The government’s Help to Buy Scheme ended 31st March 2023, but the government does still help buyers through the mortgage guarantee scheme, which they launched in 2021 to encourage providers to lend again after the pandemic.
The government also provides a First Homes scheme, giving first time buyers including key workers the opportunity to buy locally, at a discounted market rate. The discount stays on the home forever, so it benefits future buyers too.
However, the number of First Homes being built is very limited so they may not be that easy to get hold of.
Lenders do appreciate that first-time buyers who haven’t yet had the chance to build up equity can find it trickier to come up with the funds to buy a property, so there are some mortgages available tailored to their circumstances, with low, 5% deposit thresholds.
If you are a council tenant in England, the Right to Buy scheme could enable you to buy your home at a discounted price if you are eligible to do so.
Pooling your resources with a partner can improve your affordability, i.e. benefiting from an increased income multiplier, which will give you more options regarding the value of a property you are able to buy.
This type of mortgage product gives you sole legal ownership of the property, whilst sharing the financial responsibility for repayments. Usually, this will mean adding parents to your mortgage application to make your application more favourable to the lender, from an affordability perspective.
As parents are not on the title deeds, there is no stamp duty issue.
This arrangement is usually made for the first few years, at which point you will hopefully have the financial means to remortgage without your parents’ involvement.
You can find out more about this type of mortgage here.
You could apply for a shared ownership scheme, where you buy 25-75% of the property’s value, and rent the rest from a housing association. You will also usually pay a monthly ground rent or service charge.
Buying only a proportion, rather than all, of the property means that you will need a smaller deposit, and your mortgage payments will be lower although, of course, you will also be paying rent on the rest of the property’s value.
You can find out more about this type of mortgage here.
We have a team of experienced mortgage advisers who make it their job to keep abreast of the range of mortgage products available across the marketplace.
Our priority is to get to know you and your circumstances so that we can help you to secure the most appropriate mortgage product to suit your needs.
Our expert mortgage advisers are here to guide you through the mortgage process, every step of the way. 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.
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