Find out how it’s possible to get a mortgage if you have no deposit and what options are available.
What is a mortgage with no deposit?
This is a mortgage where you borrow the full amount of the purchase price of a property you’d like to buy. So, if the property purchase price is £250,000 then your mortgage will also be £250,000. They are sometimes referred to as no-deposit mortgages or 100% loan-to-value (LTV) mortgages.
In order to qualify for a mortgage with no deposit you would need to match a mortgage lender’s affordability and eligibility criteria.
Do you need a deposit to get a mortgage?
No, you don’t. There is one UK Building Society which is offering mortgages that don’t require any deposit or any kind of guarantor or family support. This mortgage offer is aimed at helping renters onto the property ladder. Here is more information about it:
- It’s applicable to anyone who hasn’t owned their property over the last 3 years with clean credit
- Evidence is required of making at least 12 months of rental payments on time, in a row over the last 18 months.
- You can borrow up to 4.49 times your salary and the maximum property value cannot be more than £600,000. For example, if your salary is £30,000 per year, your maximum borrowing amount would be £30,000 x 4.49 = £134,700
- The maximum term length is 35 years. This is the time at which your mortgage will be paid off in full if you don’t miss any payments
While this 100% mortgage product makes it possible for some renters to buy a home where they would otherwise struggle, seeking professional advice before applying for it is recommended. There are risks involved in 100% mortgages and other ways to secure finance with no deposit, such as family support mortgages and government schemes.
Speaking to a mortgage broker can help you determine if a no-deposit mortgage is the right fit for you, or whether one of the alternatives could be a better option.
What are the pros and cons?
- This mortgage is specifically for people who have been renting for at least 12 months
- No deposit is required, although you can give up to 5% if you have it
- Your mortgage payments will be fixed for 5 years meaning you won’t see any change and you’ll know what to pay every month
- You could be paying a higher interest rate due to not having a deposit
- You might face higher fees due to how complex your mortgage application might be
- There is a risk that If your house goes into negative equity you won’t have any deposit to offset any of it
- Only 1 mortgage lender is offering a zero deposit mortgage (a building society) meaning you won’t have a selection of lenders to choose from
What are the alternative options?
It’s important to consider alternatives if you think this product is not suitable. Depending on your circumstances, you could explore one of the following options:
Some lenders will offer 100% mortgages if you have a guarantor supporting you. A guarantor mortgage involves a parent or other close family member or friend agreeing to take on some of the risks that come with taking out a mortgage, guaranteeing the repayments if you cannot make them.
It works by securing the loan against a property they have equity, or by depositing some of their savings in a dedicated account. In one type of guarantor mortgage called a family springboard mortgage, the guarantor also benefits from attractive interest rates on the money they have set aside.
Bear in mind that these mortgages can be difficult to come by if you have no deposit funds of your own to put down. Some of the lenders who will consider a guarantor are Generation Home, Scottish Building Society, Swansea and Vernon Building Society.
A gifted deposit is a deposit that is funded entirely or in part by a gift of cash, usually from a family member or friend.
Some lenders (Aldermore, Furness, Metro Bank and TSB) will offer 100% mortgages with family-gifted deposits, and a few will offer them in cases where another party has contributed to the deposit in the form of a gift. This could be a vendor gift, which is a type of equity that arises when a seller offers a buyer a property at a discounted price, sometimes for a quick sale.
Using equity from another property
If you have enough equity in another property you own, you may be able to release this equity to fund a deposit on a subsequent purchase. You can find out more about remortgaging to buy a second property for more details on how it works.
Using a personal loan
Loans are not usually seen as a legitimate way to raise a deposit, and the vast majority of lenders will take a dim view of this type of strategy. This is partly because of the impact the loan will have on affordability, but mainly because it flags the borrower as posing a higher risk. However, there are one or two lenders that still accept unsecured loans. This would of course mean you’re taking on additional debt on top of your mortgage
Using credit cards
Credit cards are usually viewed similarly to loans, and they cannot usually be used to fund the entire deposit. However, as long as it doesn’t have a dramatic impact on the amount you can afford for a mortgage, it may be possible (not guaranteed) to use credit to top up a cash deposit to help your savings stretch further.
There are 4 schemes from the Government which you might be able to benefit from:
- 1. Shared Ownership. This is where borrowers own a ‘share’ of the property and pay reduced rent on the remaining proportion. This results in a smaller mortgage and therefore a lower deposit. The table below shows how taking out a Shared Ownership mortgage could reduce the deposit needed on a property valued at £150,000, depending on how much of a share of the property you own.
|Mortgage Type||Property Share||Deposit Required|
- 2. Right to Buy scheme. Eligible social housing tenants could purchase their council home at a discounted price or with no deposit, under the right circumstances. Some lenders allow applicants to use their discount for the deposit, so it’s worth speaking to a specialist broker who will know which ones to approach, especially as there are a few lenders available (Nationwide, Barclays, Santander, Halifax).
- 3. Mortgage guarantee scheme. Allows home buyers to purchase with a 5% deposit and the Government takes on a shared risk with the mortgage lender should there be any difficulties if the property has to be repossessed. There are a handful of lenders (HSBC, Virgin Money, Natwest and Barclays) still accepting applicants before the scheme ends on the 31st of December 2023.
- 4. Lifetime ISAs are savings accounts for people aged 18-39 which they can use to build up money (deposit) for their first home. For every year the account is held, the government will add a 25% tax-free bonus, so this could help you save for a deposit more quickly.
Saving up for a deposit yourself
If you haven’t ruled out the possibility of saving up and don’t need to buy a house immediately, this could be the simplest option. Most lenders will accept small deposits of between 5% and 10% if you have a clean credit record and steady income, and if you’re lucky with timing, a fall in house prices could mean your savings are worth more when you come to buy.
It could also give you time to iron out any potential credit issues that could make getting a mortgage in the future more complicated. If you’re unsure about your current credit rating, you can access a free trial
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How a broker can help
Speaking to an experienced mortgage broker is always recommended if your unsure what to do and what the right option for you is.,
A broker who specialises in no-deposit mortgages will already know which lenders are offering deals for those without a hefty cash deposit, and will also know in detail the various government schemes and other initiatives that are specifically tailored towards people in your situation.
Make an enquiry and we’ll match you with a mortgage broker who can help.
Can you get a no-deposit buy-to-let mortgage?
No, this wouldn’t typically be possible. The criteria for buy-to-let (BTL) mortgages is generally stricter than it is for residential loans, so it will be much harder to get approved if you don’t have ready cash of at least 20% deposit. Most lenders will want a 25% deposit for a buy-to-let property, and few go as low as 15% – but many professional landlords release equity from existing properties to cover this.
Get matched with a broker who specialises in no deposit mortgages
If you’re looking to take out a mortgage with a low or no deposit and would like to speak to an expert about the best options for you, you can do so by making an enquiry or calling us on 0808 189 2301.
The whole-of-market brokers we work with are experts in securing mortgage approvals for people with no deposit funds in the traditional sense. We won’t charge a fee for matching you with your ideal advisor and there’s no impact on your credit score.
A handful of lenders including Barclays, Norton and Generation Home now accept cryptocurrencies including Bitcoin as a deposit source, read our guide on cryptocurrency mortgages here.
While there are some differences between English and Scottish property laws, the lending practices are much the same regarding deposits. As is true elsewhere in the UK, no deposit mortgages in the true sense are not available in Scotland but you should have the same low deposit options available.
Most lenders will insist on a higher deposit if you have previous bad credit, but this will depend on how long ago the bad credit was registered, how severe it is and how well you otherwise fit the criteria. A bad credit mortgage broker can help you find the most suitable lender in your situation.
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