If you’re a first time buyer, one of the biggest hurdles is saving enough money for a deposit. It can be demotivating, especially if you’re paying lots of money on rent each month. While nearly all mortgage lenders will need a deposit before you can get on the property ladder, you might have some specialist options if you’re struggling to save.
It’s rare. No-deposit mortgages - sometimes called 100% mortgages - aren’t common at all. Some specialist lenders may sometimes offer them, but at the moment, there are no 100% mortgages on the market. That’s because we’re currently in a period of economic uncertainty, and 100% mortgages are usually only available when the country is experiencing a time of economic stability.
You’d probably need to have a perfect credit history to be considered if they ever do come back on the market. And they’re likely to only come back in times of very strong national financial stability.
However, if you’re willing to go for a non-standard mortgage and your circumstances fit, you may have some alternative options.
Your home is probably the biggest purchase you’ll ever make. And most of us don’t have that kind of money sitting around in our bank account. That’s where a mortgage comes in.
A mortgage lender agrees to pay for a home on your behalf, and then you repay them over a set period of time. The lender needs to be sure you’ll be able to pay it back, that’s why they carry out credit checks and affordability tests. Deposits are a way of showing a commitment to the lender, and means they’re more likely to trust you with such a big loan.
Before the housing market crashed in 2008, a lot of lenders gave out mortgages without a deposit, that covered 100% of a property’s value. This was often done without checking whether the person applying could actually afford the repayments, or how they would cope if their circumstances changed.
When house prices fell, many people were left owing far more in mortgage repayments than their houses were worth.
Now, mortgages are heavily regulated, and lenders are much more cautious about who they give mortgages to. Smaller deposits mean bigger loans, and that’s a risky investment for a lender. That’s why you’ll nearly always need to pay a deposit of at least 5% to take out a mortgage.
If you’re struggling to save for a deposit, you may have some more bespoke options if you fit the requirements. It’s important to remember that without a deposit, you’re less likely to get the good deals. It’s a good idea to work with a specialist mortgage broker who can look at your situation and explain the options.
If you don’t have a deposit and need a mortgage, you could consider a guarantor mortgage. Which means someone else agrees to legally pay your mortgage if you're no longer able. This is a serious commitment, as your guarantor's home will be secured against a part of your mortgage. This means they’ll have to pay any outstanding costs if your house is repossessed and sold by the bank.
If you pass the affordability checks, you could get a 100% loan to value (LTV) mortgage with a guarantor.
This can be a great option if you’re a first time buyer and can’t save for a deposit, but you probably won’t get the best mortgage rates. Usually, mortgages with the best interest rates are offered to people with bigger deposits, such as 20% and above. That doesn’t mean you can’t get a good deal though, you’ll probably just need to work with a specialist mortgage broker. Make an enquiry.
If you’re a council tenant in England, you could be eligible to purchase your home through the Right to Buy scheme. Right to Buy lets you buy your council home for a discounted price.
Most mortgage lenders won’t require a deposit to give you a Right to Buy mortgage, they’ll use the discount you receive as a deposit. However, some lenders might ask you to put down some cash up front (around 5-10% of the property value) regardless of the Right to Buy discount.
Because of this, the Right to Buy scheme is a good way to get on the property ladder if you have a low income or can't save a lot of money.
It’s possible to get a mortgage with a small deposit, but it will depend on your individual circumstance and what your loan to value ratio (LTV) is.
Your LTV directly impacts which mortgage rates you’ll get. Generally, the higher your LTV then the higher your interest rate will be. This is because there’s more of a risk to lenders when you borrow a lot of money. They’re investing in your property, and there’s a risk that your home could decrease in value, making for a bad investment.
If you can manage to save for a small deposit, you have a few options to help you get on the property ladder:
Help to Buy is a government scheme for first time buyers. It enables you to get on the property ladder with a 5% deposit. The government gives you an equity loan to put towards the cost of a new build home.
The loan ranges from 5-20% of the property value (40% in London), and you'll need to purchase your home from a registered Help to Buy homebuilder.
Shared Ownership is where you buy part of a property and rent the rest. You take out a mortgage on the bit you're buying, then pay a reduced rent on the bit you don't own. You’re able to buy between 25-75%, and can buy some or all of the remaining share when you can afford to.
This means you only need to put a deposit down on the bit that you’re buying, rather than the cost of the whole home.
The UK government has announced a new scheme for 2021, meaning you can get a mortgage with just 5% deposit. With the government helping mortgage lenders with part of the loan, it means you won’t have to save for a large deposit, or be restricted to new-build homes in order to get on the property ladder.
Buying a house with friends or a family member is becoming a popular way to get on the property ladder. Combining deposits and sharing all the monthly living expenses can be appealing.
It’s a big commitment though - you'll be jointly responsible for the mortgage payments. If one of you can't pay, you'll have to cover the cost. You also can't sell the property unless everyone on the mortgage agrees.
If you’re struggling to save for a deposit but have family that can help, then you could look at using a gifted deposit. You can’t technically ‘borrow’ a deposit from a family member, but it can be ‘gifted’.
Lenders will want to know that you won’t have to pay back a deposit on top of your other outgoings. You might have to provide written evidence, signed by the person giving the deposit money to you.
If you need a mortgage but have little or no deposit, it’s a really good idea to work with a specialist mortgage broker. A qualified mortgage advisor will be able to explain your options clearly and advise the best way forward.
Our brokers have access to all the specialist lenders who’ll look at your application and consider your unique circumstances. They’ll help you through the entire journey, from application right through to completion. Get started.
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Our calculators give you an idea of what you might be able to borrow, what's affordable and a rough estimate of the kind of property prices you can start to look at.