If you’re struggling to save up a deposit to buy your first home, you may be able to get on the property ladder with a 100% LTV mortgage - also known as a no deposit mortgage. Here, we explain all you need to know about how this type of mortgage works and what your options are.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
A no deposit mortgage is sometimes known as a 100% loan to value mortgage because it requires no deposit at all and involves lending the entire value of the property being purchased. Most lenders will ask for at least a 5% deposit to put towards the cost of buying your home, but with a 100% mortgage you borrow the full property value from the bank or building society and do not need to pay any money upfront.
Most lenders normally require a minimum deposit of at least 5%. There is a Government mortgage guarantee scheme, announced in the 2021 Spring Budget, which helps first-time buyers and anyone moving home to take out a mortgage with a deposit of 5%. The scheme allows buyers to choose a home valued at up to £600,000. The Government promises to cover any losses a lender might suffer should a borrower struggle to pay the mortgage back.
House deposits are worked out as a percentage of the property's value that you pay for with money you have saved up. You must then borrow the rest as a home loan or mortgage to cover the rest of the purchase price.
In most cases, the smallest deposit you can put down is 5% - so if you bought a house for £200,000, you’d need to save up £10,000. The mortgage would then have a loan to value (LTV) ratio of 95% because it would cover 95% of the purchase cost.
The more you can save for a deposit, however, the more likely you are to get accepted for a mortgage and the lower the interest rate will be. So, for the same house of £200,000, you would need to have saved up £20,000 to put down a 10% deposit, £30,000 for a 15% deposit, £40,000 for a 20% deposit - and so on.
The most competitive interest rates are usually for those who have at least a 40% deposit to put down (60% LTV) - so £80,000 for a house worth £200,000.
This type of mortgage is usually aimed at those who are finding it hard to save up enough of a house deposit to buy a home.
Although it is possible to get a mortgage without a deposit, getting a 100% mortgage, UK wide, is now very rare. The vast majority of 100% mortgages disappeared from the market following the financial crisis of 2007-2008.
The average property price has increased by £23,600 between June 2020 and October 2021 according to the lender Halifax.
With such prices for some borrowers, 100% loan to value mortgages may be the only option.
The only 100% mortgages currently available are guarantor mortgages, which usually require a family member (or friend) who owns their own home to be named on your mortgage, too. They will need to agree to meet 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, which is used as security. Your guarantor cannot withdraw the money until you have paid off a certain percentage of your mortgage.
By doing this, your guarantor’s own property or savings are at risk if you fail to make your repayments on time.
You’re more likely to get approved for a 100% mortgage if you have a good credit score, low levels of debt and a regular income. Lenders will want to see evidence that you can afford your monthly repayments.
Find out if you could get on the property ladder with the help of a parent or relative as your guarantor.
No deposit? Find out if you could get a 100% LTV mortgage
No - the only way to currently get a 100% mortgage is with the help of a guarantor.
If you are unable to find a guarantor, however, there are lots of ways to get on the property ladder more quickly and buy a house with a low deposit.
Here are some tips to learn how to save up a mortgage deposit as quickly as possible.
There are also several schemes and mortgages for first time buyers. We will explain more about these schemes later.
The main advantage of a 100% mortgage is that you can buy a home without a deposit, so there’s no need to spend years saving up or spending money on rent.
There are several disadvantages to no deposit mortgages. For a start, you’ll need a friend or family member to act as a guarantor - ideally one with a good credit history and a high enough income. If you do manage to find one, remember that your guarantor’s savings or home will be put at risk, depending on the deal you choose.
Another drawback is that 100% mortgages have much higher interest rates compared to mortgages that require a deposit. Application fees can be higher too, and you’ll usually need to pay a higher lending charge - this is a fee for borrowing with a small (or no) deposit.
A third problem is what happens if your house falls in value. You can be left in a situation known as negative equity - meaning the value of the loan you have secured on your home is larger than the value of the home.
If you can afford to keep paying your mortgage, this doesn’t matter much. But if you need to sell up you will be left having to cover the gap between the home’s value and the loan yourself - potentially trapping you where you live now.
No deposit mortgages also have the same fees, interest charges and other costs that come with any other mortgage.
A zero deposit mortgage is also much harder to get accepted for and if you do get accepted, there’s a risk of falling into negative equity - where the value of your property is less than the amount owed on the mortgage.
They can be, for example if house prices started to fall. 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 and would therefore leave you in debt.
If you’re unable to get a 100% mortgage, there are a number of other options that will typically allow you to get a mortgage with a low deposit:
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.
Help to Buy could make it easier for you to get a mortgage with a small deposit. It provides an equity loan that lets 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.
This applies to new-build homes in England only, but there are separate schemes for those living in Wales, Scotland and Northern Ireland.
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.
A deposit for a shared ownership mortgage is typically between 5% and 10% of the value of the share you’re buying – not the full purchase price. Here's an example:
If you planned to buy a 50% share of a property worth £300,000, the value of your share would be £150,000. So you’d need £15,000 to put down a 10% deposit or £7,500 for a 5% deposit.
There are also mortgages aimed at getting first time buyers on the property ladder with a deposit of 5% or more. Although many 95% mortgages were pulled from the market at the height of the Covid-19 pandemic, an increasing number of lenders are expected to relaunch them thanks to the introduction of the mortgage guarantee scheme in April 2021.
Through the scheme, the government guarantees to compensate lenders for a portion of any losses incurred if a borrower defaults on their mortgage payments and the lender has to repossess the property.
If you have lived in a council home for more than 3 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.
If you are unable to use the above mortgage options, you may need a larger deposit. Take a look at our guide on how to save enough money for a deposit as quickly as possible.
If you are unable to find a suitable mortgage yourself you could contact a mortgage broker for help.
If you're a first time buyer or looking to move house or remortgage, we can help you find the best mortgage deal to suit your needs.