No deposit mortgage (A guide)
In this brief guide, we will briefly discuss how to get a no deposit mortgage and what the implications of a no deposit mortgage are.
What is a No deposit mortgage?
A no deposit mortgage is a mortgage whereby the borrower does not put down a mortgage deposit. A no deposit mortgage is essentially a 100% loan to value mortgage. A no deposit mortgage will, therefore, mean that the mortgage rates will likely be at the highest end of the scale as there is no mortgage deposit being put down and hence the risk to the mortgage lender is much higher.
A no deposit mortgage is very hard to find. To get a mortgage with no deposit you may need a good credit score and likely be buying a standard construction property.
Types of no deposit mortgages
There are various types of no deposit mortgages, these include:
Family deposit mortgages or family springboard mortgages such as the Barclays springboard mortgage
Can you get a no deposit mortgage with bad credit?
You may be able to get a no deposit mortgage with bad credit but this will depend heavily on the type of bad credit as well as your other personal circumstances.
There are mortgage lenders who will offer a no deposit mortgage to borrowers with bad credit but this is solely based on the mortgage lenders lending criteria.
If it was a CCJ which was satisfied and is a certain age then some mortgage lenders may be willing to lend. Other mortgage lenders may lend if the CCJ was a maximum amount.
When looking to get a mortgage with bad credit the requirements from different mortgage lenders will differ and a bad credit mortgage broker may be able to assist you in getting a single person mortgage.
Bad credit could include:
A debt management plan
A home repossession
Can you get a no deposit mortgage as a self-employed borrower?
Yes, a borrower who is self-employed may be able to get a no deposit mortgage but self-employed borrowers with no mortgage deposit may find it much harder to get a no deposit mortgage.
This is primarily because mortgage lenders will place more scrutiny on the borrows salary and how reliable the salary is.
Most self-employed mortgage borrowers will require a minimum 36 months of self-employed accounts but there are some self-employed mortgage lenders which will accept a minimum of 12 months worth of self-employed accounts.
To get a no deposit mortgage as a self-employed mortgage you will need the below documents:
Your SA302 tax calculation form
Your company accounts if you work through a limited company
You may find using the services of a mortgage broker who has experience dealing with self-employed borrowers.
Other considerations a mortgage lender may take into account when offering a no deposit mortgage to a self-employed are:
The Trading style: are you drawing a salary from a company or do you have a claim over a share of retained profits. These could make a significant difference in how much you may be able to borrow.
Your experience: how long have you been self-employed and what is your working history.
Government help for your mortgage deposit
Getting a no deposit mortgage will very likely mean you have to pay high mortgage rates as you will essentially have the highest loan to value rate due to not putting any mortgage deposit down.
There are however some government schemes which may be able to help you put down a mortgage deposit but most of these schemes will require you to have at least a 5% mortgage deposit.
In some cases, you may not need to have a mortgage deposit as the government schemes will essentially provide you with a discount on the property you are trying to buy e.g the right to acquire scheme.
This discount can essentially be used as a discount as they act as a concessionary mortgage.
Some of the government schemes which you may want to consider for a no deposit mortgage include:
- Lifetime ISA– gives you a government bonus of £1,000 if you save the maximum £4,000 a year.
- Help to buy ISA– gives a maximum bonus us £3,000 if you save the maximum allowed of £12,000. Before you get either you should consider which is better. Lifetime ISA vs Help to buy ISA.
- Help to buy equity loan- gives you up to 40% as a 5-year interest-free equity loan. You begin to pay interest at 1.75 % after the fifth year and 1% plus RPI for every year thereafter.
- Shared ownership- You can buy between 25% to 75% of the property initially with a shared ownership mortgage and then buy more using a staircasing mortgage.
- Armed forces help to buy- similar to the help to buy equity loan but specific for the armed forces personnel giving them an increased chance of acceptance.
- Rent to buy- This is the right to buy scheme on which this guide is currently discussing. A different marketing name is just used. Watch out for this when shopping to avoid missing out on eligible properties due to confusion.
- Right to buy- allows you to buy your home at a discount price.
- Preserved right to buy– same as above.
- Right to acquire- same as above.
Depending on where you live, you may also be able to take advantage of home buying schemes provided by your local council. Example: In Norwich, the local councils provide the Norwich home options scheme.
Aside from these schemes a concessionary mortgage could also be given by a property developer or a family member.
The Pros of a no deposit mortgage
The obvious benefit of a no deposit mortgage is that you won’t have to put any mortgage deposit down and this means you are able to get a mortgage without needing to save any money.
You can find some forms of no deposit mortgages such as the family springboard mortgage or a guarantor mortgage.
The cons of a no deposit mortgage
One of the biggest cons of a no deposit mortgage is that you will need to have a very high credit score and good mortgage affordability before you are able to get a no deposit mortgage.
Another con of a no deposit mortgage is that the mortgage rates of a no deposit mortgage will be much higher as they will have a 100% loan to value rate and this means they are essentially much more risky to the mortgage lender.
No deposit mortgages would be very hard to find as most mortgage lenders don’t offer these types of mortgages.
No deposit mortgages have an increased risk of negative equity if property prices fall.
Use a no deposit mortgage calculator
You can use a no deposit mortgage calculator to find out how much mortgage you may be able to get. These calculators are not a complete reflection of your mortgage affordability and only provide an insight into how much you could potentially afford. If you want to get a no deposit mortgage you should consider speaking to a mortgage broker.
How to get a no deposit mortgage
If you are looking to get a no deposit mortgage you should follow these steps:
You may want to consider using an independent mortgage broker to get a no deposit mortgage.
Mortgage brokers are important as they can access mortgage products from across the whole of the market in some cases. This could be over 11,000 mortgage products. This may have some advantages than going directly to a mortgage lender.
A mortgage broker will look to understand your financial circumstances and then provide recommendations on which mortgage products may be suitable for you.
After giving you these mortgage recommendations, most mortgage brokers will seek your consent to apply for a mortgage in principle.
This will allow you to shop for your home easier as more estate agents and sellers may take you seriously or it will give you confidence that your remortgage is indeed a possibility before you make a full mortgage application.
Once you have found a home you want to buy or are satisfied with the mortgage offer for your remortgage then the mortgage broker will then look to get you a mortgage offer.
This will come with a key facts illustration document which details out the features of your mortgage including how much you will pay per month if there are any limits such as early repayment fees, or annual overpayment limits.
If you are happy with everything you can then go on to secure your mortgage with the help of a conveyancer.
Your conveyancer will manage the legal searches on the property to ensure there aren’t any issues with it, they will oversee the sales agreement to ensure it is in your best interest, they will manage the transfer of mortgage funds, exchange contracts with the seller or their conveyancer and set a completion date with the seller or their conveyancer.
We hope you found this guide on no deposit mortgages valuable. If you have any questions or comments please let us know.
If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.
You can also contact the debt charity “Step Change” if you are in debt and need help.