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No Deposit Mortgages

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By Pete Mugleston   Mortgage Advisor

Last updated: 3rd December 2018 *

Can I Get a Mortgage With No Deposit?

We’re often asked “Can I get a mortgage without a deposit?” and the answer to many is actually yes!

Getting onto the property ladder can be difficult, with the most common issue being the struggle to save a large sum of cash for a deposit. Many people approach us to ask whether they are able to get a mortgage without a deposit, and it is certainly a possibility. No deposit mortgages are more common than many people realise, and nowadays there are a vast number of options available to you as a buyer to give you a helping leg up onto the ladder.

So, if you’re struggling to save, read on to find out how to get a mortgage without a deposit. This article will be covering the following:

How Do No Deposit Mortgages Work?

“No Deposit” Does NOT Mean a 100% Mortgage

Now we need to be clear here – 100% mortgages (i.e. using one provider to lend 100% of the purchase price with no other equity / security) are not currently available in the traditional sense, but there are ways of getting a mortgage without cash as deposit.

To get the right advice on a mortgage to suit you, make an enquiry and one of the experts will be in touch ASAP to go through all your options.

Deposits are calculated as a percentage of the property’s value that you pay for with money you have saved up. A mortgage will then cover the rest of the purchase price. For example, if you bought a house for £180,000 and paid a 15% deposit you would be contributing £27,000, with the remaining £153,000 covered by a mortgage. This mortgage would have a loan to value (LTV) of 85% because it would cover 85% of the cost of the property.

It would make sense then, that a zero % deposit has an LTV of 100%, so the entire cost of your home would be covered by a mortgage. However, in today’s market, getting a mortgage with no cash to put down as deposit is not something mortgage lenders will offer.

Thankfully, there are various options available using alternative means, as discussed below.

What Are the Risks of 0% Deposit Mortgages?

The smaller your deposit, the more expensive it is to get a mortgage. Lenders see low deposits as far riskier investments, which means that you will have considerably fewer lenders to choose from. As such, you will not have access to the most competitive interest rates and are likely to be subject to higher application fees and lending charges.

In addition, there is the risk that you could end up in negative equity. For example, if you borrowed £150,000 for a mortgage with no deposit, you would owe the full £150,000 to the lender (also taking into consideration interest and other fees). If the property value dropped to £130,000 it would then be worth less than the amount you owe, and if you needed to sell the amount you receive would not be able to pay off your full mortgage.

This is why mortgage lenders in the UK will not authorise 100 percent no deposit mortgages, and instead allow a different way of buying the property without deposit that still allows them some additional security.

What Options Are Available for Zero Deposit Mortgage Seekers?

Using a Personal Loan as a Mortgage Deposit

Taking out a loan to qualify for an even larger one in the form of a mortgage is frowned upon by lenders, and many will not consider you at all. Generally, this comes down to the impact of affordability that taking a loan AND a mortgage may have, but mostly is because the borrower has not personally saved money in the game – as a result they are considered a higher risk.

That said, there are one or two lenders happy to consider in the right circumstances.

If you can prove that you are able to afford the mortgage repayments as well as your other loan(s), bills and outgoings, you may stand a chance. If it is apparent that you can’t afford a mortgage let alone a deposit when they assess your outgoings, it’s another matter. In addition, lenders will check your credit file to ensure you have clear history before confirming.

It may be possible to do this with 5% loan and 95% mortgage, 10% loan and 90% mortgage, or even 15% loan and 85% mortgage. Bear in mind that larger loans are less common as the max you can borrow on a personal loan is £25,000, and the maximum term is usually 7 years, making repayments higher than if they were over the full term of the mortgage.

Using Credit Cards as a Mortgage Deposit

Typically, credit cards cannot be used for a mortgage deposit itself, however by exception there may be lenders willing to consider using a credit card to top up a cash deposit if short of the amount required, providing the card balance is affordable.

Although it is extremely rare that a borrower would use a credit card to fund a deposit for their own home, some people will opt to increase their day-to-day credit card spending in order to save more disposable income towards a cash deposit.

This way, over time the deposit is in cash savings, and the debt is on a credit card, rather than savings spent. So long as the balance doesn’t get out of hand and mean that the new mortgage is unaffordable at the point of application, of course.

As with personal loans, the amount of credit debt you’ve racked up will be assessed by potential lenders, and once again it will all depend on your affordability - whether you are able to make the mortgage repayments alongside this additional credit card debt, plus any other outgoings. Again, it is unlikely you’ll be offered the best rates and this method could also inhibit the amount you are allowed to borrow.

Using a Gifted Deposit for a Mortgage

A gifted deposit is when somebody (usually a family or friend) gives a sum of money towards a buyer’s deposit. This contribution must be a gift, and lenders will require signed documentation confirming the donor’s name, the relationship to the buyer, the gift value, and a statement confirming the giftee is under no stipulation to repay.

Family gifted deposits are the most commonly accepted by lenders, especially when it comes to 0% deposit mortgages, but there are several others that may be accepted in certain instances:

Vendor Gifted Deposits

Vendor gifts are actually in the form of equity, and this is when a vendor offers a buyer a property at a discounted price. For example, a house may be on the market for £200,000 but the vendor may offer to sell at £180,000 (10% discount) for a quick sale. The £20,000 discount is 10% of the value of the value of the property, which may then be used as 10% of the buyer’s deposit.

Developer Gifted Deposits

Developer deposits are also an equity gift, which is a very similar concept to vendor gifted apart from the fact that the “gift” will be offered to the buyer by the builder or developer, but it’s restricted to new builds. However, it’s unlikely the developer will offer a discount over 10%, and as new builds are typically seen as higher risk lenders will usually require a minimum of 15% - 20% deposit. If you’re after a cheap mortgage with no deposit, developer gift is probably not the right road to go down.

Landlord Gifted Deposits

A landlord gift is again in the form of equity, is where a buyer purchases a property from the landlord at a discount purchase price, whereby the discount acts as the deposit.

Family Gifted Deposits

Lots of parents contribute some or all of a deposit to help their children buy their first home. It’s a good solution if the buyer is struggling to save a lump sum for a deposit but is confident that will will be able to afford the mortgage repayments. Direct family such as parents, siblings and grandparents are usually accepted without question by lenders, but there can be stricter rules around distant family giving gifts.

If you’re fortunate enough to receive a deposit gifted by family, this is a pretty good way to get on the ladder with a 0 deposit mortgage provided your credit history is clean, but you will be looked at far more favourably if you make your own financial contribution on top of the gift.

Vendor, developer and landlord gifted equity is typically regarded with a lot more caution, and as such fewer lenders are willing to accept them - especially if you’re after a zero deposit mortgage. For example, lenders will want to ascertain that the true market value of a property matches the original asking price before the discount was made. In almost every case, lenders will also want the buyer to match or at least contribute to the gifted deposit to prove their commitment to the investment.

Government Schemes to Help You Raise a Deposit

Depending on your situation, you may be eligible for help from the government. if you’re seeking a no deposit mortgage, there are a couple of flexible schemes out there which are very good to know about:

100% Shared Ownership Mortgages

Shared ownership mortgages are part of a popular government scheme which help lower income households (<£60,000 combined income a year) and first-time buyers purchase a property.

You can take out a mortgage for the share you own, which is usually between 25% - 75%, while paying reduced rent on the remaining proportion. This means that you will have a much smaller mortgage, and therefore need to save a far smaller deposit.

For example, for a property which is valued at £150,000 the breakdown may be as such for a minimum 10% deposit required:

Mortgage type Property share Deposit required
Standard 100% £15,000
Shared ownership 75% £11,250
Shared ownership 50% £7,500
Shared ownership 25% £3,750

To pay for your share of your home you can use either cash or take out a mortgage.

Most mortgage lenders will require a minimum deposit of 5% - 10%, however there are a few lenders out there that offer 100% mortgages on shared ownership properties, meaning you may be eligible for a mortgage with no deposit at all.

100% Right to Buy Mortgages

The Right to Buy scheme helps eligible council and housing association tenants in England buy their home with a significant discount. The exact amount will depend on how long you’ve been a tenant, what type of property you live in and its value.

Discount levels start at three years of eligible tenancy, increasing to a maximum of 70% of the property value. Regardless of how long you have lived in your home or how much it’s worth, the maximum discount allowed through Right to Buy is £77,900 (or £103,900 in London):

How Much Discount Am I Eligible For?
The longer you’ve been a tenant, the larger the discount you could get off of the market value of your home. NB Discounts for houses and flats are calculated differently. For example:
Buying a house Buying a house in London Buying a Flat
Current value £120,000 Current value £230,000 Current value £100,000
Years as a tenant 10 years Years as a tenant 20 years Years as a tenant 10 years
Eligible discount 40% (35% + 1% for each year over 5 years) Eligible discount 50% (35% + 15%) Eligible discount 60% (50% + 2% for each year over 5 years)
Discount value £48,000 Discount value £103,900 (50% discount = £115,000 which exceeds cash maximum) Discount value £60,000
Price you pay for property £72,000 Price you pay for property £126,100 Price you pay for property £40,000

Buying your home via Right to Buy is very similar to the normal process in that you will still need to apply for a mortgage unless you can afford to purchase the property outright. However, many lenders will allow you to use your Right to Buy discount as your deposit, meaning you can potentially get a mortgage without paying any deposit yourself.

For example, if your home costs £100,000 to buy and the maximum discount is applied to 70% of the value, then the purchase price will be £70,000. The discount has essentially contributed a deposit of 30%, and there are some lenders that will allow a 100% (nil deposit) mortgage on this £70,000.

Borrowing Over 100% on Right to Buy Mortgages

There are even a handful of lenders that will loan an additional 10% to help towards other costs associated with buying a property - so in this case, you could get a full £70,000 nil deposit mortgage plus an extra £7,000. However, this is quite rare and you may be open to more favourable rates if you also contribute to the discount out of your own pocket.

Help to Buy Mortgages

Although not 100% deposit-free, Help to Buy can make it a lot easier for you to get a better rate mortgage with as little as a 5% deposit saved. This scheme provides you with an equity loan that lets you borrow money for an interest-free deposit for five years, for up to 20% of the property's value (40% in London).

You then put down the 5% of your own cash and take out a mortgage for the rest. With a potential combined deposit of up to 25%, you will then have access to far more attractive mortgage rates from participating lenders.

Buyers are able to repay this equity loan at any time without incurring any charges. You can either repay 10% or 20% of the total about, provided the loan is worth a minimum of 10% of the value of your home.

If you don’t repay the loan while you’re still living at the property, when you sell the government will reclaim its 20% stake at the property’s current value. So bear this in mind.

Help to Buy is open to both first-time buyers and homemovers, and there is no maximum income requirement. However, it is restricted to new-builds, and the value must not exceed £600,000.

The property must be the buyer’s only residence, and may not be used to purchase a buy to let (BTL), and of course you will need to prove you can meet the mortgage lender’s criteria.

Are There Any 100% Help to Buy Mortgages Available?

Not currently. However, there are options for those borrowing their 5% help to buy deposit on a personal loan.

Other Circumstances Affecting Eligibility on Deposit Free Mortgages

As ever, there are lots of other factors that can either assist or inhibit your chances of being accepted for a mortgage. As we’ve established, getting a mortgage without contributing some of your own cash to the deposit is tricky enough, let alone if there are other factors counting against your favour. Some of the most common are:

Self-Employed and Mortgages With No Deposit

Typically, the self employed will need at the very minimum a year’s worth of accounts to be considered by a very limited number of lenders. If you have 3+ years’ worth which can prove you’re able to comfortably cover the repayments and your other outgoings you will be looked at a lot more favourably by lenders.

Bad Credit Mortgages With No Deposit

As with all bad credit cases, it depends on the individual circumstances. Below is a list of potential credit issues you may be faced with as a borrower if you’ve ever experienced any of these:

  • Adverse credit overview
  • Low credit score
  • Mortgage Arrears
  • Defaults
  • County Court Judgements (CCJs)
  • Individual Voluntary Arrangements (IVAs)
  • Debt Management Plans (DMPs)
  • Bankruptcy
  • Repossession

If you have any of these issues, it really depends on the severity of the issue. For example, low credit score or late payments are less severe than repossession and bankruptcy. The date they were registered are also significant; more recent they occurred, the harder it is to get approved for if it was an instance from years ago.

Loan as a Deposit with Bad Credit

There are currently very few lenders considering loans as deposit, add to this credit issues and the lenders are limited to a small handful. That said it’s not impossible. Typically, these lenders require a higher deposit in general, so it maybe you need 25% regardless – if this is affordable on a personal loan, or by using cash and some loan, then there may still be options for you, even with severe credit issues.

Help to Buy with Bad Credit

There are a several lenders offering the 75% mortgage to go alongside the help to buy equity loan and 5% deposit. In these instances, depending on the credit issue, you would likely need the 5% deposit as your own savings as a minimum.

Right to Buy with Bad Credit

Several of the lenders considering right to buy mortgages will allow adverse credit, again depending on the date and type of the issues. Some of them will stipulate a minimum of 5% deposit where others are happy to lend to 100% of the discount purchase price.

Non-Standard Construction Types and No Deposit

Non-standard constructions are typically seen as riskier investments, which means fewer willing lenders and less competitive rates. Those who do consider will usually require a far larger deposit for non-standards builds, and if you’ve not contributed anything to the deposit yourself it is unlikely you’ll be accepted as there is no way of proving your commitment to an already risky investment.

Buy to Let Mortgages With Zero Deposit

Most lenders require at least 25% deposit for a BTL property, where some will accept 20% and a handful can consider just 15%. If you manage to generate the required deposit through other means such as a gift but have paid nothing yourself, lenders will want to know why, but it is possible.

The only real way of buying a Buy to let with no deposit would be to finance it with a personal loan, although the number of lenders considering this is extremely limited. Other than that, you’d need to raise capital against another property, and if you don’t own any other assets then this is not likely to be possible.

It’s worth noting here that those looking to purchase a second home are not eligible for government schemes such as Help to Buy.

Speak to An Expert in Zero Deposit Mortgages Today

If you’d like further no deposit mortgage advice, call Online Mortgage Advisor today on 0800 304 7880 or make an enquiry here.

Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances. We don’t charge a fee, and there’s no obligation or marks on your credit rating.

Updated: 3rd December 2018
OnlineMortgageAdvisor 2019 ©

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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