What is a no Deposit Mortgage?
A no deposit Mortgage is where a Mortgage Lender lends you the full purchase price for the home you wish to buy.
Paying no deposit for a Mortgage these days is rare.
But there are some options available, but you will usually need the help or generosity of someone else.
Types of no Deposit or 100% Mortgages
You may have seen some Lenders recently advertising that you may be able to get a no deposit Mortgage with them.
When considering the true definition of a 100% Mortgage, this isn’t really the case.
This is because although the Lender is lending you 100% of the Property Purchase price. You do still require some form of Security in most cases.
This Security will usually be in the form of a Family member or Friend offering some form of collateral or guarantee.
Guarantor and Family Assist Mortgages
Guarantor Mortgages are the most common form of no deposit Mortgage for First Time Buyers.
The Lender will usually take hold of some of your family member or friends Savings or some of the Equity in their Home for a defined period of time.
You then take out a Mortgage for up to 100% of the value of your new home.
Providing you keep up with Repayments during a defined period of time. Usually between 3-5 years. Your guarantor will get their money back and/or will be released from their guarantee.
This type of Mortgage is a Family Assist or Guarantor Mortgage but is also known as Family; Boost, Link, Springboard etc.
If you don’t have a family member or friend which is willing or able to help. You will then need to find some form of deposit yourself.
Ways in which you can do that other than by saving, are discussed below under “no deposit Mortgage First Time Buyer”.
Savings as Security - Guarantor Mortgages
This is where a family member or friend deposits an amount with your Mortgage Lender.
This is usually around 10% of the value of the property you are purchasing.
The savings will be held in an account with the Mortgage Lender for a set number of years, usually 3-5 years.
Or until you have a set amount of Equity (property value minus your Mortgage) in your home. Usually around 25% of your properties value.
Providing you’ve kept up with your repayments, your Family or Friend will get back their savings, usually with Interest.
Of course, if you fall behind with repayments, they will be at risk of losing some or all of their Savings deposited.
Property as Security - Guarantor Mortgages
Your Guarantor uses the equity in their home to help.
Your Mortgage Lender will take a legal charge over their property. Which is usually around 25% of the value of the property you are buying.
If the Guarantor currently has a Mortgage of their own on their property. Whether they are able to help will be dependent on how much equity they have on their property.
Your Lender will impose a Legal Charge on your Guarantors property.
This could mean their home as well as yours could be at risk.
But this will only be if you find yourself in a position where you are unable to keep up with repayments on your Mortgage.
If a Guarantor Mortgage is not an option. Another form of no deposit mortgage could be a builders deposit.
In recent times, Builders Deposits have been offered by New Build Developers.
This will usually be down to them wanting to shift the property quickly, but also are sometimes offered to those who work in emergency services.
There are usually two ways a developer will offer a builders deposit.
Either by providing a cash payment. Or by offering you to purchase the property at an amount that is less than the true value of the property.
Can I get one of the above No Deposit Mortgage or 100% LTV Mortgage
Ultimately you will still need to meet the Lenders affordability and general lending Criteria, as you would with an ordinary Mortgage.
Lenders which Offer these Mortgages will generally require you to have a Good Credit history.
Some Light Adverse Credit may be permitted such as a couple of missed payments or where the bad credit is at least 3 years old.
So providing the Lender deems the Mortgage as affordable to you.
And you have good credit and you and the property you want to purchase fit the Lenders criteria. You should be able to obtain one of the above Mortgages with no deposit.
Providing you have the opportunity to do so.
If not. Further no deposit options are listed below.
Positives of a No Deposit Mortgage or 100% LTV Mortgage
The main and most obvious benefit. 100% loan to value Mortgages enable you to purchase your home without an actual deposit.
It could also be a good alternative for Family or Friends that want to help you but are unwilling or unable to gift you a deposit.
There are quite a few different options these days. Lenders keen to win new business have come up with quite a few different types of No Deposit Mortgage for First Time Buyers. This means greater options for you.
No Deposit Mortgage First Time Buyer
Less Freedom – You will be reliant on a family member, who will also be liable if you miss repayments.
Circumstances can change. And if you fall behind with Repayments on your Mortgage. Your guarantor could be called upon, which will put their Savings and Home at Risk as well as yours.
If this happens, this could obviously affect your Relationship with the family member or friend.
Negative equity – Property prices are not guaranteed to continue to rise.
As you are borrowing 100% of the properties value, the risk of the value of your Mortgage being more than your Home’s value is high.
This obviously isn’t ideal, but could also have negative effects to the Mortgages you will be eligible for in the future. And in extreme cases, you could become a Mortgage Prisoner.
This is where you are unable to change Mortgage Products with your existing lender and are unable to Remortgage to a new one.
Impacts to Guarantor – Your Family or Friend will not be able to Access the Savings or equity in their home they have used as a Guarantee until your Mortgage lender releases them from the obligation.
Cost – 100% Mortgage products are generally more expensive than ordinary Mortgage products.
Stricter Criteria – Lenders are stricter when it comes to accepting applicants for a 100% Mortgage.
Other No Deposit Mortgage First Time Buyer
Other 100% Mortgages for First time Buyers are:
Loan as a Deposit – Some lenders will allow a loan to be taken out and used as your deposit.
The loan repayment will be taken into account when the Lender considers whether you can afford the Mortgage. So it’s best to speak to a Mortgage Advisor before taking out any loan.
Gifted Deposit – Simply where a friend or relative gives you the deposit monies as a gift. This will usually open up more options than a no deposit or Guarantor Mortgage.
Concessionary Purchase – This little known option is where a family member, friend or your Landlord sells a property to you at a reduction from the market value of the property. The difference between the price you pay for the property and the true market value, will be your deposit.
A 100% Mortgage for First Time Buyers isn’t going to be for everyone.
But as you can see from the above, there are quite a few different options.
To summarise, these are:
Loan as a Deposit
Get in touch if you would like more information on any of the above, or would like some individual advice on anything.
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