Getting A Mortgage With No Deposit
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Getting a mortgage with no deposit, also known as a 100% mortgage, is challenging and rare.
We know how difficult it is to save a deposit, especially if you’re renting, but a higher deposit often improves your chances of securing a mortgage. It may also lead to better interest rates. Read our guide to deposits to find out more.
However, some specialised mortgages may offer hope if you don’t have a deposit.
Why do lenders want deposits?
Banks don’t usually give out mortgages to cover the full cost anymore.
Back in 2008, during the financial crisis, house prices fell a lot. People owed more money to the banks than their homes were worth. So now, banks want you to put some money down upfront to make sure they won’t lose out if they need to repossess and sell your home.
This upfront money you put down is called a deposit. If house prices fall, the deposit you put in (which becomes your ‘equity’ in the home) is the first thing that gets affected. If the bank has to take back your home, they hope they can still recover what you owe them.
How to get a mortgage with no deposit
The number of lenders offering mortgages with no deposit is very limited. Banks still think it is risky and usually require more than just your word that you’ll pay them back.
You’ll need a very good credit score and a strong credit history. Lenders will want confirmation that you’ve got a good record of repaying borrowed money on time.
Can I get a no deposit mortgage with bad credit?
Unfortunately, having missed payments, defaults, or County Court Judgments in the last six years makes getting a 100% mortgage unlikely.
You may still be able to get a mortgage with a bigger deposit. Read our page on bad credit mortgages for more information.
I might be able to get a 5% deposit from savings or a gift – does that change things?
Yes! Having just a 5% deposit can result in more options. Numerous high street banks and building societies are prepared to lend to someone with a 5% deposit, subject to assessment. Lenders still typically require a good credit score.
There are also several special schemes available for those with small deposits. These include Deposit Unlock, First Homes, and Low Cost Housing.
If your borrowing potential is limited, you might want to consider Shared Ownership or a Joint Borrower Sole Proprietor mortgage.
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I don’t have a deposit – what mortgage options are available to me?
Family Assist – savings
The most common type of 100% mortgage is known as a Family Assist mortgage.
A close family member, such as a parent or grandparent, might have money in the bank but are not prepared to gift it to you.
With this type of mortgage, instead of gifting you the money, your relative deposits a sum equivalent to between ten and 20 per cent of the purchase price (depending on the lender) in a special savings account.
This money cannot be accessed for a few years while you are building up some equity. If you miss mortgage payments, the money will be kept until your payments are up to date. The bank can also use the money to recover any losses if they have to repossess and sell the house.
After a few years of you making the mortgage payments in full and on time, your relative can get their money back with interest on top. They will need to pay for independent legal advice as part of the application process.
Family Assist – equity charge
This operates similarly to the Family Assist mortgages mentioned above, but this time, your family member doesn’t have to deposit any cash. This can be a great option for a relative who wants to help but doesn’t have money to gift or lock away.
Instead, they must be a UK homeowner, who owns at least 40% of their property outright. They must willing to allow your mortgage lender to place a legal charge over their house. This charge typically equals 20% of your purchase price.
If you were unable to pay your mortgage, the lender could require your relative to release equity from their property to cover your shortfall. Once again, obtaining independent legal advice, as well as a valuation of your relative’s property, would be necessary.
Gifted equity
Instead of gifting you cash, a family member or your landlord lets you buy a property from them at a discounted price. The difference between the actual value and the agreed price is known as gifted equity.
Depending on its value, you might not need to put any of your own money down as a deposit.
There may be lender restrictions around the familial relationship and the value of the gift. If you already rent the property from a private landlord, you usually need to have rented it for twelve months before lenders will accept a gift of equity from your landlord.
Track Record
If you don’t have a deposit because you’ve been renting, and family aren’t able to help out financially, you could consider a Track Record mortgage. This is a 100% mortgage based on your record of paying rent and bills, so no deposit is required.
Do you have a question?
Advantages of getting a mortgage with no deposit
- No deposit needed – saving for a deposit can be the biggest difficulty prospective homeowners face, so not needing one can be a bonus
- Get on the ladder – a 100% mortgage can allow you to get on the property ladder sooner
- Family without money can help – family members often want to help but are unable to due to lack of savings. With the equity charge option, they can help as long as they are homeowners
Disadvantages of getting a mortgage with no deposit
- Limited options – your choice of lenders and products could be much more restricted compared to borrowers with deposits
- Higher interest rates – lenders may charge higher interest rates on 100% mortgages due to the increased risk associated with lending without a deposit
- Risk of negative equity – if property values drop, you may find yourself owing the bank more than the house is worth
- Stricter eligibility criteria – lenders are likely to impose stricter eligibility criteria, such as a strong credit history or higher income requirements, to mitigate the risks of a 100% mortgage
How can The Mortgage Store Chorley help get a mortgage with no deposit?
Start your journey to owning a home confidently with The Mortgage Store Chorley!
Our advisor is an expert in getting mortgages with little to no deposit, making it easier for you to buy your dream home. Discover custom options, expert advice, and special products to help you get the keys to your new home without needing a large upfront deposit.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
