Getting on the Property Ladder Without a Deposit
Struggling to save a deposit for your first home?
A no-deposit mortgage might be your solution. At Kerr & Watson, we understand the challenges of saving for a deposit while paying rent and managing other expenses. This guide will explain how no-deposit mortgages work, their advantages and disadvantages, and how you can benefit from our expert advice.
What is a No-Deposit Mortgage?
A no-deposit mortgage, also known as a 100% loan-to-value (LTV) mortgage, allows you to borrow the full value of the property you wish to purchase without needing to pay any deposit upfront. This type of mortgage is ideal for those who are struggling to save a significant deposit but still want to get on the property ladder. The options are however limited and lenders sometimes needing the mortgage payment to be less than current rent payments.
How Do Mortgage Deposits Work?
Typically, when you buy a house, you’re required to put down a percentage of the property’s value as a deposit. Most lenders ask for at least a 5% deposit, meaning if you’re buying a home worth £200,000, you’d need to save £10,000. The more you can save for a deposit, the better your chances of securing a mortgage with a lower interest rate. However, a no-deposit mortgage allows you to borrow the entire amount needed to purchase the property.
Find out Your Options
Who Can Benefit from a No-Deposit Mortgage?
No-deposit mortgages are particularly beneficial for:
First-Time Buyers
If you’re a first-time buyer, saving for a deposit while renting can be challenging. A no-deposit mortgage can help you move into your own home sooner.
Renters
If you’re currently paying high rent, saving for a deposit can feel impossible. A no-deposit mortgage allows you to buy a home without needing to save a large sum of money first. However, there are lenders that may allow the mortgage if the monthly payment is less than your current rent.
Low-Income Buyers
Those with lower incomes who find it difficult to save a deposit might find this option more accessible if their mortgage is however high enough to pass the lenders affordability checks.
How to Qualify for a No-Deposit Mortgage
While no-deposit mortgages offer great opportunities, qualifying for one can be more challenging than traditional mortgages. Lenders typically require:
Good Credit Score
A solid credit history demonstrates your ability to manage debt responsibly.Stable Income: Proof of regular income ensures you can afford monthly repayments.
Affordability Checks
Lenders will assess your ability to repay the mortgage through detailed affordability checks. Your mortgage may be higher due to rates being at the highest loan to value and funding the entire purchase. You can check your affordability using our Affordability Calculator.
100% Mortgages and Guarantor Mortgages
An alternative to a no-deposit mortgage is a guarantor mortgage. This involves having a family member or friend agree to meet any repayments you miss. There are two main types of guarantor mortgages:
Property Security
Your guarantor’s home is used as security. If you fail to repay, the lender can claim money from your guarantor or even repossess their home.
Savings Security
Your guarantor deposits a lump sum into a savings account with the lender, which is used as security. The guarantor cannot access these funds until you’ve repaid a certain percentage of your mortgage.
Advantages of No-Deposit Mortgages
No Need for Savings
The most significant benefit is that you can purchase a home without having to save a large deposit.
Faster Home Ownership
Without the need to save for years, you can become a homeowner sooner.
Rent Savings
Potentially lower monthly mortgage payments compared to renting which may be criteria to get the mortgage in the first place depending on lenders current products and schemes.
Disadvantages of No-Deposit Mortgages
Higher Interest Rates
These mortgages usually come with higher interest rates compared to those requiring deposits.
Negative Equity Risk
If property prices fall, you might owe more than your home is worth.
Stricter Requirements
Higher lending charges and stricter application criteria can make it harder to qualify.
Relocation Or Smaller Property May Be Required
With lenders potentially having a rule that your mortgage payment must be lower than your current rent to qualify for a 100% mortgage, this often means moving to a cheaper area or a smaller property to make the application meet the lender’s criteria. For instance, going from renting a 3 bedroom house to buying a 2 bedroom flat.
Other Options If You Can’t Get a No-Deposit Mortgage
If you don’t qualify for a no-deposit mortgage, other options might help you get on the property ladder with a low deposit:
Shared Ownership
Buy a share of a property and pay rent on the rest. This reduces the deposit and mortgage amount needed.
Joint Mortgages
Pooling resources with someone else to afford a deposit and mortgage.
Kerr & Watson: Your Mortgage and Protection Experts
At Kerr & Watson, we specialise in helping clients navigate the complex world of mortgages and protection. Here’s why you should choose us:
- Expert Advice: Our experienced advisors offer personalised advice tailored to your financial situation.
- Wide Range of Products: We work with numerous lenders to find the best mortgage options for you.
- Comprehensive Support: From the initial consultation to securing your mortgage, we support you every step of the way.
Conclusion
A no-deposit mortgage can be a viable option for many aspiring homeowners, offering the chance to buy a property without the need for significant savings. However, it’s essential to understand both the benefits and risks involved. Also, with options being very limited, there may be challenging conditions to meet in order to qualify, such as being a renter taking a mortgage with a lower monthly cost than the rent, or being a first time buyer.
At Kerr & Watson, we’re here to help you explore your options and guide you through the process of securing the best mortgage for your needs. Contact us today for expert mortgage and insurance advice.
