Can you get a mortgage with no deposit?
Yes, it is possible to get a mortgage without saving for a deposit first, but 100% mortgages are now very rare.
The only type currently available are guarantor mortgages, which usually require a family member who owns their own home to be named on the mortgage too. This can put their own property or savings at risk if you fail to make your repayments on time.
There are several options that could help you get on the property ladder quickly with just a small deposit, even if you currently do not have one saved.
How do mortgage deposits work?
Deposits are worked out as a percentage of the property's value that you pay for with money you have saved up. Your mortgage covers the rest of the purchase price.
For example, if you bought a house for £200,000 and paid a 10% deposit, you would need £20,000. You would then get a mortgage for £180,000 to cover the rest of the price.
This mortgage would have a loan to value (LTV) of 90% because it would cover 90% of the purchase cost.
A mortgage with no deposit would have an LTV of 100%.
It was much easier to get a mortgage for 100% or more of a property's value before the banking collapse in 2007, and some lenders would even give borrowers up to 125%.
Although you can still find mortgages with an LTV of 100% and more, these deals are not available for first time buyers.
They are for existing borrowers only to help them remortgage if their house has fallen in value or they need to use the funds for renovations.
Types of mortgage with no deposit
Guarantor and family mortgages
If you have a relative or friend willing to help you get on the property ladder, they could agree to be named on your mortgage as a guarantor.
They will need to agree to make any repayments you miss and either:
Use their own home as security: Your mortgage company would have a charge on your guarantor's home, meaning they could reclaim money from them or even repossess their home if you fell too far behind on repaying your mortgage.
Use their savings as security: Your guarantor puts a lump sum into a savings account held with the mortgage provider, who use it as security. They cannot withdraw the money until you have paid off a certain percentage of your mortgage.
New build developer loans
Property developers sometimes offer to loan you enough for a deposit when you buy a new home they have built.
For example, the housing developer may lend you 20% of the property value and ask to be repaid in 15 years.
You will need to be able to afford your mortgage repayments and to pay off the property developer's loan as well.
Other mortgage options
If you are unable to use the above options or they do not suit your circumstances, there are several other types of mortgage for first time buyers.
They require a deposit, but this is usually smaller than standard mortgages.
Help to buy
Help to Buy includes two government schemes that make it easier to get a mortgage with a small deposit:
Help to Buy equity loans let you borrow money for a deposit interest free for five years (up to 20% of the property's value or 40% in London). You then put down a further 5% deposit from your own money and get a mortgage for the rest of the price.
The Help to Buy mortgage guarantee scheme lets you get a mortgage with a deposit of 5%. The government guarantees up to 15% of the purchase price to help you get accepted for a mortgage.
Shared Ownership mortgages allow you to buy a percentage of a property, usually between 25% and 75%. The rest is owned by your local authority or a housing developer, and you will pay rent on the percentage of the property they own.
This means you would have a much smaller mortgage and need a smaller deposit. For example:
|Mortgage type||Property share||Deposit required|
First time buyer mortgages
You can get mortgages aimed at getting first time buyers on the property ladder with a deposit of 5% or more.
Right to Buy mortgages
If you have lived in a council home for more than three years you may be able to buy it at a discounted price.
The discount you are given on your home could be as much as 70% depending on how long you have lived there. Some lenders let you use this discount as your deposit.
Buying a property with someone else means you can save a deposit between you. You will also usually have a higher joint income, meaning you could split the cost of paying your mortgage.
Alternatively, you could get a joint mortgage with a friend or relative who wants to help you get on the property ladder.
Save up a deposit
If you are unable to use the above mortgage options, you may need a larger deposit. Here is how to save enough money for a deposit as quickly as possible.
How to get a mortgage
If you are unable to find a suitable mortgage yourself you could contact a mortgage broker for help.
What are the risks of getting a mortgage with no deposit?
If you took out a 100% LTV mortgage and the property value fell, you could end up in negative equity. This would mean you owe your bank more than your property is worth.
For example, a 100% mortgage on a property that cost £100,000 would mean you owed £100,000 to your lender. If the property value then dropped to £90,000 it would be worth less than the amount you owe.
If you needed to sell the property, the amount you are likely to get for it would not pay off your mortgage in full.
Are 100% LTV mortgages more expensive?
It is usually more expensive to get a mortgage with a smaller deposit. Mortgages with lower LTVs often come with:
Higher interest rates
Higher application fees
A higher lending charge, which is a fee you pay for borrowing with a small deposit
They also have the same fees, interest charges and other costs that come with any other mortgage.