No Deposit Mortgage: Buying Without a Deposit in the UK

Saving for a deposit remains a major hurdle for first-time buyers, making a no deposit mortgage an attractive alternative. However, not everyone has tens of thousands tucked away. So, is it truly possible to get on the property ladder without a deposit? Surprisingly, yes – but it’s not without its caveats.

Understanding No-Deposit Mortgages

A no-deposit mortgage, also known as a 100% loan-to-value (LTV) mortgage, allows buyers to borrow the full value of a property without contributing any upfront cash themselves. While once common, such mortgages largely disappeared after the 2008 financial crash. Today, they exist in more limited forms and usually require some form of security.

Options for Buying Without a Deposit

Family Support Schemes

One of the most accessible routes to a no-deposit mortgage involves support from family. A few key schemes are:

Guarantor Mortgages

In this arrangement, a family member – usually a parent – agrees to act as a financial backstop. Should the buyer fail to keep up with repayments, the guarantor is responsible. Sometimes this means securing the mortgage against the guarantor’s own property or placing savings into a linked account with the lender.

Family Offset or Support Mortgages

Rather than acting as a guarantor, family members may deposit money into a special savings account held by the lender. Lenders lock these funds for several years to act as a security buffer. They return the money once the buyer repays part of the mortgage or after a fixed term – provided no defaults occur.

Discounted Sales (Concessionary Purchases)

In some cases, a seller – often a family member, landlord, or employer – may offer the property at a discounted price. Lenders may accept the discount as a substitute for a deposit. For instance, if a property worth £200,000 is sold for £180,000, the £20,000 reduction can be considered as the buyer’s equity stake.

Shared Ownership

A government-backed scheme, shared ownership enables buyers to purchase a portion of a home (usually between 25% and 75%) while paying rent on the remainder. Deposits are based on the share being bought, which significantly lowers the upfront cost. In some cases, buyers can secure their share with little or no deposit, especially when combined with local authority or developer incentives.

The Downsides of Zero-Deposit Mortgages

While the idea of skipping the deposit may be appealing, it’s important to weigh the associated risks.

Higher Borrowing Costs

Mortgages without a deposit typically come with higher interest rates. Lenders view them as higher risk, which is reflected in the cost of borrowing. Over time, this can mean paying thousands more compared to buyers who put down even a modest deposit.

Limited Lender Choice

Only a small number of lenders offer 100% LTV mortgages, and they tend to come with strict conditions. Buyers may face narrower eligibility criteria and fewer flexible options in terms of term lengths and repayment structures.

Greater Risk of Negative Equity

If property prices fall, those with no deposit are at greater risk of owing more than their home is worth. This situation, known as negative equity, can complicate remortgaging or selling the property in the future.

Stricter Affordability Assessments

Lenders will scrutinise a borrower’s income, outgoings, and credit history more thoroughly when no deposit is involved. A high credit score, steady income, and low debt levels are crucial to stand any realistic chance of approval.

Alternatives for Those With Limited Savings: No Deposit Mortgage

If a true zero-deposit mortgage isn’t viable, there are other approaches to consider that still reduce upfront costs.

Low-Deposit Mortgages

Mortgages requiring 5% or even 10% deposits are far more common and offer broader lender choice. Government initiatives like the Mortgage Guarantee Scheme have encouraged more lenders to return to offering 95% LTV products.

Lifetime ISAs (LISAs)

Designed to help first-time buyers save for a home, a Lifetime ISA offers a 25% government bonus on savings of up to £4,000 annually. This can be an efficient way to build a deposit, particularly when combined with other schemes.

Getting Expert Guidance: No Deposit Mortgage

Navigating the mortgage market is tricky at the best of times – let alone when trying to purchase with no deposit. A mortgage adviser can offer valuable insight into which lenders offer 100% LTV products, assess your financial readiness, and help determine the most appropriate solution for your situation.

Final Thoughts

Buying a home without a deposit isn’t just a dream – buyers can achieve it under the right circumstances. However, these mortgages don’t suit everyone, and borrowers must carefully weigh the associated risks. Whether through family assistance, government schemes, or lender-specific products, those willing to explore less traditional routes may find themselves holding the keys to their first home sooner than expected.