Can I get a mortgage with no deposit?
In most home-buying scenarios, having a deposit is a requirement when raising a mortgage. However, there are some exceptions and specialised scenarios where a deposit may not be required that we will cover in this guide.
Can I get a mortgage without a deposit?
Prior to the 2008 financial crisis, it was common for lenders to offer mortgages with high loan-to-value (LTV) ratios, including 100% LTV or even 120% LTV mortgages, which allowed borrowers to borrow without a deposit and sometimes even above the value of the property.
However, since the financial crisis, many lenders have become more cautious and have tightened their lending criteria, which has made it more difficult to obtain high LTV mortgages. While it is still possible to obtain a 100% LTV mortgage in some scenarios, they are less common than they were before the financial crisis.
Why do mortgage lenders require a deposit?
Most mortgage lenders require borrowers to provide a deposit when taking out a mortgage. This is because the deposit serves several important purposes, including reducing the amount that the lender is required to lend, providing equity in the property, and showing the lender that the borrower is financially committed to the purchase.
In the event of repossession, the deposit also ensures that the lender is able to recoup their investment, with any remaining equity going to the borrower.
Mortgage options with no deposit
Right to buy purchase with no deposit
It is possible to buy a council property through the Right to buy scheme with no deposit using the discount on the property as a deposit. However, this will depend on the specific lender and their lending criteria.
Some lenders may allow 100% of the discounted equity to be used as the deposit, while others may require a deposit in addition to the discounted equity.
It’s important to note that the amount of discount available on the property will vary depending on the length of time the tenant has been living in the property and the property’s value.
Guarantor mortgages – No borrower deposit
It is possible to get a mortgage with no deposit through a guarantor mortgage. In a guarantor mortgage, a third party, such as a parent or family member, provides a guarantee to the lender that they will make the mortgage payments if the borrower is unable to do so.
Barclays Springboard Mortgage is an example of a guarantor mortgage that allows borrowers to obtain a mortgage with no deposit. The borrower’s family member or friend deposits 10% of the property’s purchase price into a savings account with Barclays, which is held as security against the mortgage. After three years, assuming the mortgage payments have been made on time, the guarantor’s savings are returned to them with interest.
It is possible to buy a house with no deposit through a concessionary purchase. This involves purchasing a property at a discount off a family member or landlord and using the discount as a deposit. Some lenders may allow the entire deposit to be sourced from the equity, while others may require the borrower to make their own deposit contribution in addition to the discount.
Skipton Building Society
Skipton Building Society has announced that they are planning to introduce a 100% LTV mortgage for first-time buyers. As part of the assessment process, they will be checking the buyer’s track record of rental payments.
Mortgage options with a small deposit
While it is possible to buy a property with no deposit in some scenarios, you will have many more options available to you if you can put down a deposit, usually a minimum of 5% of the property value.
Here’s a few options available with a smaller deposit.
It is possible to find mortgages that require as little as a 5% deposit, which can be beneficial for first-time buyers or those with limited savings. However, it’s important to note that a smaller deposit may result in higher interest rates and potentially more restrictive mortgage terms.
When buying a shared ownership property, you typically need to provide a deposit based on the share you are purchasing. For example, if you are buying a 50% share of a property valued at £200,000, your share would be worth £100,000.
If the lender requires a 5% deposit, you would need to provide £5,000 rather than the £10,000 deposit you would need if you were buying the property outright at market value. This can make shared ownership more affordable for some buyers.
If you don’t have enough funds for a deposit, some lenders may accept a gifted deposit from family or friends. A gifted deposit is where someone gives you money towards your deposit without expecting repayment. Lenders will typically require a letter from the person giving the gift, confirming that it is a gift and not a loan, and may also require proof of the donor’s identity and bank statements.
Buy with friends or relatives
If you can’t afford to buy the type of property you need on your own, you could consider buying a property with a friend or family member who could contribute to some or all of the deposit.
This would enable you to borrow more money and potentially afford a larger property or one in a more desirable location. However, it’s important to note that there are risks and considerations to take into account when buying property with someone else.
First Homes Scheme
The First Homes scheme is a government initiative designed to help first-time buyers get onto the property ladder by offering new build homes at a discount of at least 30% of the full market value.
This means that the deposit required is based on the discounted purchase price rather than the full market value. For example, if the full market value of a property is £200,000 and it’s being offered under the First Homes scheme with a 30% discount, the purchase price would be £140,000, and the deposit required would be based on this reduced price.
Get a Personal loan for a deposit
It’s possible to obtain a personal loan to cover some or all of your deposit for a mortgage. However, it’s important to note that only a few mortgage lenders accept personal loans as a deposit source.
Lenders that do accept personal loans will factor in the loan payments when assessing your affordability. It’s also worth noting that using a personal loan to fund your deposit may limit your options when searching for a mortgage lender.
How Strive Mortgages can help
We have years of experience in arranging mortgages for clients with small or no deposits. If you’re interested in buying a property and getting a mortgage, we would love to hear from you and let you know your options, regardless of the level of deposit you have.