No deposit mortgage
A 100% LTV mortgage, also known as a “no deposit” mortgage, may help you get on the property ladder if you are having trouble saving up for a deposit mortgage.
We explain how no deposit mortgages work and your options.
Be careful before you take out any other debts against the home. If you fail to make your mortgage payments or other secured debts, your home could be taken away from you.
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What is a No Deposit Mortgage?
No deposit mortgages are sometimes called 100% loan to value mortgages. This is because there is no deposit required and the mortgage broker lends the entire property’s value.
While most lenders require a minimum of a 5% deposit to purchase your home, a 100% mortgage allows you to borrow the entire property value from the bank/building society without having to pay anything upfront.
What is the minimum deposit required to purchase a house?
Lenders usually require a minimum deposit equal to 5%. The Government has announced a scheme to guarantor mortgages, called the 2021 Spring Budget.
This scheme helps first-time home buyers and anyone who is moving into a house, with a minimum deposit of 5%.
Buyers can choose from a range of homes up to £600,000. If a borrower fails to repay the mortgage, the government promises to compensate them.
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What is the process of mortgage deposits?
House deposits are a percentage of the property’s value you pay with money you save. To cover the remainder of the purchase price, you will need to borrow the remaining amount as a mortgage or home loan.
The minimum deposit that you can make is 5% in most cases. If you want to buy a house worth £200,000, you would need to save £10,000. Because it would pay 95% of the purchase price, the mortgage would have a loan-to-value (LTV) ratio (95%).
However, the higher your chances of getting approved for a mortgage, and the lower the interest rates, the more money you can save. For the same house worth £200,000 you would need £20,000 to save a 10% deposit. £30,000 to save a 15% deposit and £40,000 to save a 20% deposit.
For a house valued at £200,000, the most competitive interest rates are for those with a minimum 40% deposit. (60% LTV) = £80,000.
Who would need a 0% mortgage deposit?
A mortgage without a deposit is often for those who have difficulty saving enough money to purchase a home.
How do you get a mortgage with 0 deposits?
It is possible to obtain a mortgage without having to deposit money, but it is very rare to get a 100% mortgage in the UK. After the financial crisis of 2007-2008, the vast majority of 100% of mortgages were removed from the market.
- According to Halifax, the average property price increased by £23,000.00 between June 2020 and Oct 2021.
- With these prices, 100% loan-to-value mortgages might be the only option.
100% Mortgages with guarantors
Guarantor Mortgages are the only 100% available mortgages. These mortgages usually require a friend or family member who has their own home to also be named on your mortgage. They must agree to pay any missed payments and either:
- You can use their home as security. Your mortgage company will place a charge on the home of your guarantor. This means they could make money back or repossess your home if you fall behind in your mortgage repayments.
- Their savings can be used as security: The guarantor deposits a lump sum in a savings account with the mortgage provider. This is used as security. The money cannot be withdrawn by your guarantor until you have paid off a percentage of your mortgage.
If you don’t make your payments on time, your guarantor’s property and savings could be at risk.
Can I get a no deposit mortgage?
A 100% mortgage approval is more likely if you have a good credit history, good credit score, low debt levels and regular income.
Lenders will need to see proof that you can afford your monthly mortgage payments.
Can I get a 100% mortgage with no guarantor?
No, you cannot get a 100% mortgage without a guarantor.
There are many ways to quickly get on the property ladder if you don’t have a guarantor. You can also buy a house for a small deposit.
These are some tips on how you can save as much as possible for a mortgage deposit.
Many mortgages and schemes are available for first-time buyers. These schemes will be discussed further.
Compare mortgages for first-time buyers
What are the benefits of 100% mortgages?
A 100% mortgage has the main advantage that you can purchase a home without having to pay a deposit.
What are the drawbacks of 100% mortgages
No deposit mortgages have many disadvantages. You will need to find a friend or relative who can act as a guarantor. This is preferably someone with good credit and sufficient income. Depending on the deal, your guarantor’s home or savings may be at risk.
One drawback to 100% mortgages is their higher interest rates than mortgages that require deposits. You might have to pay higher application fees and a higher loan charge. This is a fee that you pay for borrowing money with a low (or no) deposit.
The third problem is what happens when your house loses value. Negative equity is a situation where the loan secured on your house is greater than the property’s value.
This doesn’t really matter if you have the money to pay your mortgage. However, if your home is worth less than the loan amount, you’ll have to pay the difference yourself. This could potentially put you in a bind.
Are no deposit mortgages cheaper?
No deposit mortgages have the same fees and interest charges as any other mortgage.
It is much more difficult to obtain a zero deposit mortgage. If you are accepted, there is a chance of falling into negative equity. This is where your property’s value is less than what is owed on the mortgage.
Are zero deposit mortgages risky?
If house prices start to fall, they could be. A 100% mortgage on a property costs £100,000. would mean that you owe £100,000. If the property’s value drops to £390,000. it would be worth less than what you owe.
If you had to sell your property, the amount that you would get would not be enough to pay off your mortgage and you would end up in debt.
Why can’t I get a mortgage with no deposit?
What amount do you need to deposit?
What to do if you are unable to get a 100% mortgage
There are many other options if you can’t get a 100% mortgage.
Developer loans for new builds
Sometimes property developers will lend you enough money to cover a deposit if you purchase a home they’ve built.
The housing developer might lend 20% of the property’s value to you and ask for a 15-year repayment.
You must be able to afford to make your mortgage payments and pay off the loan owed to the property developer.
Program to Help You Buy
With a small deposit, Help to Buy may make it easier to obtain a mortgage. You can borrow money to pay a deposit interest-free for up to five years. This equity loan is available for as little as 20% of the property’s worth or as much as 40% in London.
The mortgage will be granted to the remainder of the purchase price by requiring a 5% deposit from your own funds.
This is only applicable to homes built in England, but separate programs are available for people who live in Wales, Scotland, and Northern Ireland.
This is all you need to know about Help to Buy
You can buy a portion of a property through a Shared Ownership Mortgage. This is usually between 25%-75%. You will rent the remainder of the property, which is usually owned by a local authority or housing developer.
This would mean that you would need a smaller mortgage and a smaller deposit.
The deposit required to secure a mortgage for shared ownership is usually between 5%-10% of the purchase price of the share. Here’s an example.
The value of your 50% share in a property with a market value of £300,000. would be £150,000 To make a 10% deposit, you would need £15,000 or £7500 to make a 5% deposit.
Compare shared ownership mortgages
First-time buyer mortgages
There are also mortgages that can be used to help first-time buyers get on the property ladder. These mortgages require a minimum deposit of 5%. Many 95% of mortgages were removed from the market during the Covid-19 pandemic. However, lenders are starting to relaunch them with the introduction of the mortgage guarantee program in April 2021.
The scheme guarantees that the government will compensate lenders for a percentage of losses if a borrower defaults on their mortgage payments.
Right to Purchase Mortgages
You may be eligible to purchase a property at a discount if you’ve lived in a council house for longer than three years.
Depending on how long you’ve lived there, the discount you get on your home may be up to 70%. This discount can be used as a deposit by some lenders.
This is all you need to know regarding the Right to Buy Scheme
You can save money if you buy a property together. A higher joint income will usually mean that you can split the mortgage payment.
You could also get a joint mortgage with someone you know who is interested in helping you climb the ladder to property ownership.
This is all you need to know regarding joint mortgages
Save up for a deposit
You may need to deposit a higher amount if you cannot use the mortgage options above. Our guide will show you how to save enough money to make a deposit as soon as possible.
Get a quote from Loan Corp today and see what options you have for your mortgage.