As a mortgage broker, I understand that the mortgage process can seem overwhelming. That’s why I want to take a moment to explain a type of mortgage loan that was popular prior to the 2008 financial crisis – the 100% loan-to-value mortgage.
A 100% loan-to-value mortgage, as the name suggests, is a type of mortgage where the borrower can obtain a loan amount equal to the full value of the property they are purchasing without having to make a down payment.
However, it’s important to note that these types of loans were a contributing factor to the widespread default and foreclosure of many homeowners during the 2008 financial crisis. The housing market experienced a significant downturn and many homeowners owed more on their mortgage than the property was worth.
Since then, with laws and legislation changes and lenders’ criteria and requirements tightening, no deposit mortgages are much rare but not entirely impossible.
Today, the practices of offering 100% loan-to-value mortgages are heavily regulated to prevent a similar crisis from happening in the future. As a responsible mortgage broker, I always work with my clients to ensure they understand all the options available to them and find the best mortgage solution for their individual needs and circumstances.
What is a no-deposit option?
As a mortgage broker in the UK, I often get asked about different types of mortgage options available to clients. One such option is the “no deposit” option.
A no deposit option is a type of mortgage loan that enables borrowers to purchase a property without having to save up a large deposit. Instead, the lender provides the full loan amount required to purchase the property, and the borrower pays back the loan over time, just like a traditional mortgage.
This type of mortgage can be particularly appealing for first-time buyers or those who are struggling to save up a large deposit. However, it’s important to keep in mind that the lack of a deposit can result in higher monthly mortgage payments, as the borrower is borrowing a larger amount from the lender.
As a mortgage broker, I always work closely with my clients to understand their individual circumstances and financial goals and help them find the mortgage solution that is right for them. If a no deposit option is something that you’re interested in, I would be happy to provide you with more information and explore if this is the right choice for you.
How do mortgage deposits work?
Deposits are a cash sum that you put towards the cost of purchasing a property and the rest is made up of a mortgage loan from a lender. You may have heard of the term loan to value (LTV) ratio and this is calculated as a percentage of your mortgage loan in comparison to the property value.
Having a higher deposit will result in a lower LTV ratio, which can make it easier to secure a mortgage loan and often results in more favourable terms, such as lower interest rates. On the other hand, a lower deposit will result in a higher LTV ratio, which can make it more challenging to secure a mortgage loan and may result in higher interest rates.
It’s important to note mind that the size of your deposit can also impact your monthly mortgage payments. By providing a larger deposit, you reduce the amount you need to borrow and lower your monthly mortgage payments.
Property value = £200,000
Deposit = £10,000
Mortgage loan = £190,000
£190k of £200k makes a loan to valueThe ratio of the mortgage amount to the value of the propert... = 95%
If you are looking to purchase a home, generally speaking lenders require a minimum of 5% deposit but the larger the deposit the better. Having a bigger deposit will open up your access to more mortgage deals and better interest rates which could reduce your monthly mortgage payments.
Throughout your mortgage term, if you have a capital repayment mortgage, you make monthly payments to the lender which consists of interest payments and payment to reduce your loan amount. Should you wish to sell your property and it hasn’t been paid off in full to the lender, a proportion of the sale will be returned to the lender to pay off the remaining debt owed to them and you receive the rest.
How to get a mortgage without a deposit?
The products that are available to a borrower with no deposit will require a guarantorA person who guarantees to repay a mortgage if the borrower .... A guarantor is usually a parent or a close family member take some of the risk of a mortgage loan by acting as a guarantor and putting up assets as a security for a loan. The collateral they usually have to put up is their own property or savings.
Property as security:
This requires a percentage of the guarantor’s own home to be secured against the borrower’s mortgage loan as collateral. This is a huge commitment for a guarantor and careful consideration needs to be taken because if the borrower defaultsMissed payments on credit accounts, which can affect a borro... on mortgage payments, it could result in the guarantor’s house being repossessed to pay for any shortfalls.
Savings as security:
A guarantor will be required to put a certain amount of money into a savings account held by the lender for a period of time as stated by the lender. Withdrawals are prohibited until a certain percentage of the mortgage loan is paid off. Again the guarantor could risk losing their savings if the borrower does not keep up with mortgage payments.
• Allows you to buy a property with no deposit.
• Can allow you to get on the property ladder sooner.
• Requires a close relative to act as guarantor.
• Mortgages with lower deposits or no deposits could come with higher costs such as application fees, interest rates or lending charges.
• It may take longer to pay off if you are borrowing more from the lender and monthly payments may be higher.
• If property value decreases, you could end up with negative equityA situation where the value of the property is less than the... in your property which means you would owe the lender more than the value of your property.
Besides having a guarantor, lenders will need to assess your application for other factors which help them determine their decision. They will need to ensure you have a steady income to be able to fund the mortgage repayments and your outgoings to check your affordability. They will also check your credit score and credit history to see how risky of an applicant you are. It is good practice to check your credit score often to help you understand your position and ensure there are no inaccuracies.
What if you don’t have a guarantor?
It isn’t worth trying for a mortgage if you are not eligible. Mortgage lenders carry out credit searches as part of their assessment process which can leave a ‘hard search’ on your credit report which will show the mortgage lender requested your credit report but not the results. Hard searches can lower your credit score so if your mortgage application is rejected, then other lenders are wary.
There are other schemes available to help with getting on the property ladder:
Shared Ownership allows someone to part-buy, or part-rent a home from housing association and the share you can initially purchase is usually between 25% – 75% of the property price. You provide a deposit (typically between 5% – 10%) and take out a mortgage for your share of the property. For the remainder share of the property you pay rent to the housing association until you have purchased 100% share of the property. This means the deposit you are required to have is lower as you only need a percentage of your share of the property rather than the full value of the property.
Help to Buy Scheme
Help to buy equity loan: You will be required to save for a deposit of at least 5% whilst borrowing up to 20% of the cost of a newly built home (up to 40% in London boroughs) from the government to add to your deposit. The share the government has loaned you will need to be paid back when you come to sell the property or at the end of the term and how much you pay back depends on the property’s current market value, not the original purchase amount. Having a higher deposit can increase your chances of being accepted for a mortgage.
Trying to buy a property with no deposit can be more difficult but saving for a deposit can also be challenging. Each lender’s requirements for a mortgage applicant can vary so by consulting with a specialist mortgage broker, it could help save you time and provide you with options that are available for you and your situation and circumstances.
FAQs – Mortgage without any deposit
Can I get a mortgage with no deposit with poor credit history?
It is possible to get a mortgage with no deposit and poor credit history, however, it is not easy. Lenders will assess your credit score and credit history as part of their decision-making process and if you have a poor credit score or history, then this could affect the outcome of your application.
If you are looking for a mortgage with no deposit and poor credit history, then bad credit mortgage brokers may be able to help. They may be able to provide you with a mortgage but the interest rates may be higher than those offered by mainstream lenders. It is important to shop around and compare different lenders and their offers before making a decision.
How can I get no deposit mortgage option?
Getting a no deposit mortgage option is possible but it is not easy. Lenders will assess your credit score and credit history as part of their decision-making process and if you have a poor credit score or history, then this could affect the outcome of your application.
If you are looking for a mortgage with no deposit, then bad credit mortgage brokers may be able to help. They may be able to provide you with a mortgage.
Can I get a 100% mortgage with no deposit option?
Getting a 100% mortgage with no deposit option is possible but it is not easy. Lenders will assess your credit score and credit history as part of their decision-making process and if you have a poor credit score or history, then this could affect the outcome of your application.
In some cases, lenders may offer 100% mortgages with no deposit required but these are usually only available to those with a good credit score and history such as NHS employees. It is important to shop around and compare different lenders and their offers before making a decision. We would suggest you to contact a specialist mortgage broker who will help you with a suitable mortgage deal.
Are these no deposit mortgage options cheaper?
No, these no deposit mortgage options are not cheaper. In some cases, lenders may offer 100% mortgages with no deposit required but these are usually only available to those with a good credit score and history such as civil service employees. The interest rates on these mortgages may be higher than those offered by mainstream lenders. It is important to shop around and compare different lenders and their offers before making a decision. If you are interested in no deposit loan options, you can always contact a specialist mortgage broker, who will help you to secure an affordable mortgage deal.
What is the government’s mortgage guarantee scheme?
The government’s mortgage guarantee scheme is a scheme designed to help people get on the property ladder with a smaller deposit. The scheme was introduced in 2021 and allows lenders to offer mortgages of up to 95% loan-to-value (LTV) without the need for a large deposit. Under the scheme, lenders are able to offer mortgages with just a 5% deposit, which is backed by the government. This scheme is available to both first-time buyers and existing homeowners. To learn more, you can always contact an experienced broker to help you in securing a mortgage deal.