Can you get a no deposit mortgage?

It can be really difficult for first-time buyers to get onto the property ladder. House prices continue to rapidly increase at a much faster pace than wages. There’s a lack of affordable housing on sale and finding the money for a deposit when rent is so high can be a struggle for many people.

Before the financial crash of 2008, it was fairly common for lenders to offer no deposit mortgages. But during the recession and in the years following, this type of mortgage disappeared from the market as they were just too risky for lenders. But, with a real need to get more people onto the property ladder, some lenders have reintroduced no deposit mortgages.

If you’re wondering how to get a 100% mortgage with no deposit, this article will run through everything you need to know.

What is a 100% mortgage?

A 100% mortgage is sometimes referred to as a no deposit mortgage, as it's a mortgage where the home buyer has no deposit to contribute towards the property purchase. Instead, the mortgage is a 100% loan from the mortgage lender. 100% mortgages are generally for first-time buyers. Home buyers borrow the full purchase price of the property with the money being entirely provided by the lender. 100% mortgages are generally for first-time buyers.

How do you get a no deposit mortgage?

No deposit mortgages, or 100% mortgages, aren’t very common so they can be hard to find. You can apply directly with the lender, but it could be beneficial to speak to a mortgage broker first. You may have to pay a broker fee, but they can help you understand if a no deposit mortgage is right for your circumstances and if so, where to apply for one.

With very few lenders offering 100% mortgages, it’s important to do your research so you know what it’s really like to be a customer. Our Smart Money People reviewers have left their feedback on the mortgage lenders they’ve used so you can see how they stack up against each other.

Although you won’t have to pay a deposit, you’ll most likely have to pay other costs like legal and survey fees which can be expensive.

How does a 100% mortgage work?

Just like with a standard mortgage, if you’re approved for a 100% mortgage you’ll need to make monthly payments to repay the amount you borrowed plus interest. Because the loan-to-value rate of the mortgage is much higher in no-deposit mortgages than with a standard mortgage, the mortgage rates are likely to be higher in comparison as well, though some lenders will offer both fixed-rate and variable-rate mortgages on these terms so you can find the right balance and affordability.

What are the pros and cons of no deposit mortgages?

There are plenty of things to consider if you’re thinking about a no deposit mortgage. Here are the main advantages and disadvantages.

The pros of no deposit mortgages

• You can buy a home without having to save for a deposit
• If the home needs any improvements, you could use savings for that work instead
• If your home increases in value, you’ll build up equity and can switch to a better interest rate deal
• With the right property in the right location, it could work out cheaper than renting

The cons of no deposit mortgages

• Your mortgage interest rate is likely to be higher than a standard mortgage, meaning your mortgage payments will be more expensive
• If your property’s value falls below the price you paid for it, you’ll be in negative equity (owing more than your home is worth)
• Your monthly mortgage payments will be higher than if you’d paid a deposit
• There’s a limited choice of lenders offering no deposit mortgages
• Depending on the property it could cost you more than renting

Alternatives to a mortgage with no deposit

If you’re not sure that a 100% mortgage is right for you, there are some alternatives:

Guarantor mortgage

A guarantor mortgage is where another person agrees to be liable for your mortgage payments, if you don’t pay them. As part of this deal, they’re most likely to have to put their own property up as security. The mortgage lender will usually charge a higher-than-average interest rate to cover the increased risk of this arrangement.

Family deposit mortgages

A family deposit mortgage still involves a guarantor, but in this case, they need to keep a proportion of the value of your home, usually between 10% and 20%, in a secure savings account.

The money is held there for a set period, often around five years, earning interest. Provided you’ve kept up with mortgage payments, the money along with earned interest, will be returned to them. If you haven’t, some or all of the money will be used to pay for any arrears. As an alternative, they can also put their own home up as security.

Government schemes

As well as guarantor or family deposit mortgage options, you might want to consider what support the Government can provide as well. Currently, there’s a variety of schemes available, particularly if you are a first-time buyer, which could be a more affordable option compared to the higher mortgage rates you’ll likely face with no deposit mortgages:

Lifetime ISA 

Lifetime ISAs offer a bonus of 25% on savings (up to a maximum of £1,000 per tax year) to help you save for a deposit on a home or for your retirement. If you’re trying to save up for a deposit to access more flexibility with mortgage lenders and rates, a Lifetime ISA could be a good opportunity to explore. 

Shared Ownership

Shared Ownership properties allow you to buy a share of the property, usually between 25% and 75%, and then pay rent to your local authority or housing developer on the rest of the value. Again, if you’ve got a small deposit to contribute to the property purchase, this might be a good option to explore.

Expert thoughts on no deposit mortgages from Smart Money People 

While no deposit mortgages, or 100% mortgages, sound like a great opportunity for buyers struggling to save for a deposit, there are some significant disadvantages to consider. Not least, the higher repayment rates and more limited choice of mortgage lenders. If you can, we’d suggest looking into ways to save up a small deposit, even if just 5%, as this will automatically open up more opportunities and could help secure you better rates. If that’s not possible for your circumstances, we’d strongly recommend working with a trusted mortgage broker to really understand what your different options are. They’ll also be able to help you find the different mortgage lenders offering no deposit mortgages, giving you the best possible choices at the time of searching. 

You can compare reviews of mortgage brokers, and mortgage lenders, through our ranking tables which are based on real, authentic, customer experiences to help find the best mortgage broker to assist in finding a no deposit mortgage lender.

Please note: It’s important to do your own research before taking out a mortgage. Make sure you can afford the repayments and understand the risks before committing.