In this article, we explain what a mortgage without a deposit is, how a 100% LTV mortgage works and which types of mortage products can be used to achieve a mortgage without a deposit.
What is a no-deposit mortgage?
When you buy a property you will typically have to contribute a deposit towards the purchase. This will be combined with a mortgage loan from a mortgage lender. The bigger the deposit you contribute, the lower the loan-to-value (LTV), which means you can get a lower interest rate on your mortgage making your monthly payment cheaper.
As the name suggests, a no-deposit - or 100% LTV mortgage - is a mortgage that doesn't require a deposit. In the past, they were readily available, with some lenders even offering loans for more than the value of the property. The financial crisis in 2007 brought an end to that, with no-deposit mortgages now incredibly rare in the UK.
If you have some money available to form a deposit, you may want to consider a 95% LTV mortgage. You can read more about them in our article "Which are the best 95% LTV mortgages - and should I get one?"
Can you get a 100% LTV mortgage?
Yes, in some instances you can get a 100% LTV mortgage but they are few and far between with qualifying criteria that some may not meet. The products that are available are generally specialist guarantor mortgages, which require a family member or friend to agree to take responsibility for the loan if the homebuyer misses payments or defaults on the debt.
There are other options for securing a property with no - or a very low - deposit, which we will outline in this article. Most of these also require help from a third-party, either a family member, property developer or government scheme.
When you are trying to find the best mortgage deal for your circumstances, it is a good idea to speak to a qualified mortgage broker*, who will help you navigate the available options. You can also search for qualified mortgage professionals using the online directory services provided by Unbiased* or VouchedFor*. The online directories of financial professionals allow you to search for your preferred mortgage adviser based on customers' reviews and rankings for customer service and expertise.
Which types of mortgage offer 100% LTV or no-deposit lending?
What is a guarantor mortgage?
If you are struggling to save a deposit or secure a mortgage with no deposit, a guarantor mortgage works by a friend or family member guaranteeing they will repay the loan if the original mortgage applicant can't. To facilitate this, they have to offer something as collateral for the debt, which is typically their own home or existing savings. It can even be possible for the guarantor to raise a loan against their own property, releasing some of the equity they own, to provide you with a deposit.
A guarantor mortgage can enable people who otherwise wouldn't be able to get a mortgage to get on the property ladder. However, the guarantor has to shoulder the responsibility for the loan, stepping up to make any payments that have been missed. If a situation arises where the lender has to repossess the property, any shortfall between what the lender can sell it for and the amount outstanding on the mortgage will have to be settled by the mortgage applicant and the guarantor.
The potential consequences if the arrangement between the homebuyer and guarantor goes wrong are significant and, as such, it is not something to be entered into lightly. It is a big commitment and requires a great deal of trust and clear communication from the outset. Indeed, some lenders require proof that the prospective guarantor has received legal advice and is aware of the risks involved.
Advantages of a guarantor mortgage
- It is one of the only options available for those who want to buy a property without a deposit.
- It can enable those who can't secure a mortgage because of an impaired credit history or other complications to buy a home.
Disadvantages of a guarantor mortgage
- In the worst-case scenario, if the loan is secured against the guarantor's property, they risk losing their home. This could happen if the property the person is acting as guarantor for is repossessed and sold and the shortfall exceeds the available equity in the property that has been put up as collateral.
- Guarantor mortgages are typically more expensive than standard mortgages, which means it is imperative to properly assess the affordability of the loan at the outset to minimise the risk of defaults.
- As guarantor mortgages are a niche product, there isn't as much choice available.
- The person acting as guarantor has to meet certain criteria, including having a good credit history and having enough equity or savings to be able to secure the mortgage.
What is a family mortgage?
In addition to standard guarantor mortgages, there are also so-called "family mortgages", which work by a family member or close friend offsetting some of their savings to fund a "deposit" for the new property. This can work by the money being put aside in a separate account to be used to fund any missed payments over a set period at the beginning of the mortgage term or, alternatively, to be offset against the new mortgage to reduce monthly payments.
Having looked at the options currently available on the market, and analysing the cost, risk and terms and conditions, the two leading options in this space are the Post Office First Start mortgage and the Barclays Family Springboard mortgage. However, these are specialist products and won't be suitable for everyone. As ever, it pays to get advice and, in the case of the family member acting as a "guarantor" or "assistor", to speak to a solicitor to get a full understanding of the legal ramifications.
Post Office First Start Mortgage
The Post Office offers a First Start mortgage which allows your sponsor or guarantor to use their income to boost your affordability. Although it is a 95% LTV mortgage, it does create an opportunity to borrow up to £500,000 in situations where your income multiples may not allow for this with other mortgage products. It also offers a way for your sponsor to help you even if they have no assets or savings to offer as collateral. Applicants must earn at least £20,000 annually and the sponsor must earn in excess of £30,000 and as long as the sponsor does not wish to be a registered owner of the purchased property, you will still qualify for first-time buyer stamp duty rates.
Barclays Family Springboard mortgage
A family deposit mortgage, such as the Barclays Family Springboard mortgage, facilitates a first-time buyer obtaining a 100% LTV mortgage by a family member or friend, in effect, providing a deposit of 10% of the property's value. They transfer this amount into a separate account - with Barclays this is called a Helpful Start account - where it is tied up for 5 years, over which time it may be used to cover any missed payments or be put towards the costs to the lender of having to repossess the property.
If the buyer makes all of the repayments on time over the five-year period, the full amount, plus interest, is returned to the family member. If payments have been missed, the money may be kept for longer until the payments are up to date. As stated above, there is a risk that the money may not be returned - in part, or in full - if the buyer can't make all the payments or if the property is repossessed.
It is worth noting that, as with the Post Office First Start mortgage, the rates on family deposit mortgages are typically significantly higher than for standard products. Again, assessing affordability is key.
Skipton track record mortgage
Skipton Building Society offers a track record mortgage that means renters who can prove they have been paying rent equivalent to the mortgage payment on a 100% LTV mortgage can qualify without the need for a deposit. Skipton's offering means that borrowers who have struggled to save a deposit but can prove affordability through consistent rental payments as well as household bills, can get onto the property ladder without the help of a guarantor. It is a fairly unique product that could suit some renters - to read more about how to qualify, read our article, "Skipton launches no deposit mortgage for renters – how does it work and who can get one?".
What is a concessionary mortgage?
A concessionary mortgage is one that is offered to someone who is able to purchase a property at below-market-value. The difference between what they pay for the property and its true market value, acts as the deposit. It is an arrangement that is most often seen between family members as a parent or grandparent may be willing to sell their property at a discount, passing on the asset to family members who can arrange a concessionary mortgage to complete the purchase. It can also support a landlord to offer the sale of their property to a tenant at below-market-value in certain circumstances. There are stamp duty benefits for the buyer in this scenario as they will only pay stamp duty on the below-market-value but inheritance tax and capital gains tax may need to be considered more closely before choosing this route to buying a house. You can read more in our article, "Concessionary mortgages explained".
How can I get a deposit for a house?
While there are some mortgage products designed to allow people to buy a property without having a deposit - as we have discussed above - a better option for many people is to secure a deposit and get a standard mortgage with an LTV of 95% or lower. The main benefits of this are:
- The monthly repayments are likely to be lower. Indeed, the lower the LTV, the cheaper the interest rate and the lower the repayments
- There is a greater choice of mortgages available
- It reduces the risk of the homebuyer falling into negative equity, whereby the mortgage debt is higher than the value of the property
- It avoids a family member or friend having to take responsibility for the mortgage debt and risking their own financial security
However, with the average house price in the UK standing at over £275,000, even a 5% deposit could be around £13,750 or higher. For buyers looking to buy in more expensive areas or keen to secure a lower LTV mortgage, this amount could be considerably higher. In terms of how to get a deposit, the main options are to save it or receive a loan or gifted deposit.
There is more information in our article "How much deposit do first time buyers really need?"
Saving for a deposit
Although the prospect of saving thousands of pounds for a deposit can be daunting, there are simple ways to maximise the amount you can save each month, getting you to your goal of owning your own property as fast as possible. These include:
- Taking out a Lifetime ISA: This savings vehicle allows first-time buyers to save up to £4,000 each year, which is boosted by a 25% contribution by the government, up to a maximum of £1,000 each year. For details of the available Lifetime ISAs, read "Compare the best and cheapest Lifetime ISA".
- Start budgeting: By getting to grips with your monthly spending, you can identify areas where you can save extra money for a deposit. There are numerous budgeting apps available to help with this task, with a review of our favourites in the article "The best budgeting apps in the UK: How to budget without trying".
- Cut your costs: In addition to budgeting, look for ways to reduce your outgoings, including changing providers for your utilities, moving to a cheaper mobile phone or broadband deal or sacrificing subscription services, such as Netflix or Amazon Prime. It may be worth moving back to your family home, if that is an option, to save money on rent, which is most people's largest monthly outgoing. For more ideas check out our article "25 money saving tips that could save you thousands"
Taking out a loan for a deposit
If you are borrowing money to fund a deposit, this will be taken into consideration by the lender when assessing your mortgage application. If you are lent the money by a family member, such as a parent or grandparent, they may have to prove the money came from them as part of anti-money laundering checks carried out by the lender. They will typically also have to put in writing the fact the money is a loan rather than a gift and may have to state what the repayment schedule is. This will be factored into the lender's calculations of the borrower's outgoings and financial commitments as part of their affordability assessments.
Generally speaking, it is not a good idea to take out a personal loan or use a credit card to fund a deposit. Details of this additional debt will be clearly visible on your credit file and the mortgage lender is likely to view it as an indication you are a high-risk borrower. In addition, the repayments on the loan will be factored into the affordability test. It is very likely you will be turned down for the mortgage which, in turn, will further damage your credit history.
Receiving a gifted deposit
If you are lucky enough for a family member or friend to be willing and able to gift you the money for all or part of your deposit, this is a good way of being able to get on the property ladder quickly. However, there are a number of factors to take into consideration:
- As with a loan, the person gifting the money will typically have to prove how the money has accumulated to meet anti-money laundering regulations. They will also need to put in writing that the money is a gift rather than a loan
- The person gifting the money will have to sign a document to state they have no rights over the property, either in terms of a right to live there or any rights to equity when the property is sold
- If the person contributing the deposit dies within 7 years, inheritance tax may be payable on the amount that's been gifted
A vendor or property developer deposit
There are some situations where a vendor or new-build property developer will incentivise buyers by offering to pay the buyer's deposit. For example, if the property is valued at £250,000, they may accept an offer of 10% less and then offer that £12,500 upfront to form the deposit. This is quite a rare arrangement because of the obvious risks and complications involved, particularly if the sale falls through. In addition, lenders are increasingly wary of this set-up, with many insisting the mortgage applicant contributes at least part of the deposit themselves and, overall, put up a larger percentage (20% plus) of the property value.
Should I get a 100% LTV mortgage?
As it is difficult to get a 100% LTV mortgage - and you will pay a premium for doing so - it is worth considering securing a deposit for at least 5% of the property value. If you are a renter with a track record, you can explore the Skipton Track Record mortgage. While guarantor mortgages allow family and friends to help first-time buyers enter the property market, these products do have inherent risks associated with them and must be considered carefully.
For further advice on how to get a 95% LTV mortgage, read our article "Which are the best 95% LTV mortgages - and should I get one?"
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