While putting down a deposit will invariably help you get a good mortgage, the truth is this isn't always possible. But don’t lose hope – here’s how to get a mortgage without a deposit.
You have spotted your dream house and feel ready to go ahead and buy. In an ideal world you would probably put down a nice, hefty deposit.
Of course, it doesn't always work this way, especially for first-time buyers who will generally be younger and earning less, making it tough to save up enough to make a decent down payment.
Lenders are happier to offer their best mortgage deals to people who can put down sizeable deposits – due to the fact that there is less risk involved for them – so what can you do to find and compare mortgages that suit your needs?
Work out your financial situation first
Before you begin comparing mortgage without deposit deals, spend time going over your finances and thinking about your situation.
There are important questions to ask, like will your current lifestyle allow you to make monthly repayments? If so how much can you afford? Are you in a secure job? Will it be just you taking on the mortgage responsibilities?
If you think you can commit yourself to getting a mortgage then you can compare no deposit mortgage deals. Just be sure you are able to do so, as you may lose your house if you can’t make the repayments. If your no deposit mortgage is guaranteed or 'assisted' by a family member, their funds and possibly even their home could also be taken as collateral.
Take into account that finding a no deposit mortgage could be very difficult; one option which you may want to explore is a mortgage which allows you to put forward a low deposit that’s guaranteed by a family member. While this should only be done if you are sure you can also make adequate payments, it does at least offer another option.
Alternatively, you might be able to utilise the government’s Help to Buy schemes. Help to Buy Part 1 offers a low cost loan up to £120,000 to boost your deposit, but only available for new-build homes; under Help to Buy 2 the government guarantees part of your mortgage to encourage lenders to boost their high LTV offerings.
What are fixed and variable rate mortgages?
Even if you've only made tentative enquiries about what sort of first time buyer mortgage no deposit deals are available, you’ll probably have come across the terms fixed rate and variable rate.
So what do they mean and why does it matter to you?
Fixed rate mortgages
These phrases describe the initial interest rate offered per mortgage. Essentially, a fixed rate mortgage tells you in advance how much you’ll need to pay back each month.
The main benefit of fixed rate mortgages is that you can budget accordingly and base your wider financial plan around what you’ll be repaying each month. However, that added certainty and price protection usually comes at a cost of slightly higher fixed rates.
If interest rates bottom out and fall, you will probably end up paying over the odds compared to someone with a tracker. If interest rates shoot up then it will be the risk takers who’ll pay the price, not people who chose fixed rates.
Variable rate mortgages
Variable or tracker mortgages on the other hand can fluctuate as they follow the Bank of England’s base rate of interest.
These tend to offer slightly lower rates to begin with, but as they are not fixed they can go up or down. If you opt for one of these you are taking the chance that interest will stay low or drop, so that you pay less. However, if they increase then you could end up paying more.
Comparing initial interest rates and fees
Initial rates are what lenders use as the hook to reel in customers and make you sign on the dotted line. If you look beyond them when making your 0% deposit mortgage comparison the chances are there’ll be extra costs lurking in the depths.
This is because mortgage providers may charge fees to arrange a mortgage, which then cancel out its lower initial interest rates. You are basically paying to have their best policy.
These product costs can reach into the thousands, so you need to take them into serious consideration when comparing 100% mortgages no deposit deals. If you aren't in a position to put forward a big deposit, committing to expensive arrangement fees could also be a bad move.
As lenders consider mortgages offered to people with smaller deposits as risky, they tend to charge higher interest rates to mitigate your lack of deposit and they may not offer you the chance to make underpayments.
Can you remortgage with no deposit?
With so much stacked against no deposit mortgages, your best chance of finding a 100% LTV loan might be via remortgaging.
You might do this to reduce how much you’re paying on an existing mortgage, to release funds for home improvement or remortgage to pay off debt.
Remortgaging lets you undercut the rates that kick in after your initial rates end. If you get a better mortgage deal elsewhere your repayments could well be more manageable, you could potentially save lots of money in the long run.
However, while you won’t need a deposit to remortgage most lenders will charge a service fee to facilitate the switch – you need to make sure you can afford the fee and the ongoing repayments.
With less to payback overall, lower monthly repayments and avoiding dangers associated with negative equity it’s well worth making a no deposit comparison to see what deals you can get.
For remortgage only deals, compare what different companies are offering to see if you can get a cheap rate that’s good for you.