Can you get a 100% no deposit mortgage?
True 100% mortgages are a thing of the past, but you can get a no deposit loan by using a guarantor or being creative with your deposit savings.
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Why won’t banks give a 100% unsecured loan?
After the 2008 Global Financial Crisis, UK banks tightened their lending criteria. Lending someone 100% is considered too risky.
Most lenders prefer that borrowers have a 20% deposit, but that is becoming increasingly difficult to save in the UK, which is why more banks are willing to lend you up to 95% of a property’s value.
You can skip this completely by using a guarantor or you can find other ways of pulling together a 5% deposit.
100% mortgage options and alternatives
A family member (usually a parent) who owns their own property outright can guarantee your deposit. Your guarantor uses their property as security in place of a deposit.
You borrow the money and make repayments as usual, but the guarantor is partly responsible if you can’t meet your repayments. A guarantor can cover part or all of a deposit or even the loan itself.
Here are the basic things you need to know about guarantors:
- Eligibility. A guarantor should be a family member over 18 years old who has equity in their property and good credit.
- Risk. If you default on your mortgage (meaning you can’t make repayments) then your guarantor might have to pay up. This could force them to sell their property in order to pay back your lender.
- Repaying the deposit. If your guarantor only agreed to guarantee a 20% deposit then once you’ve repaid 20% of the loan they are off the hook even if you default. This helps minimise the guarantor’s risks.
Getting a deposit through cash gifts, inheritance or other alternatives
You can scrape a deposit together from many sources. Lenders do want you to have at least 5% of a property’s value in genuine savings, but there is a way around this. You can get a deposit together in the following ways:
- Your parents could give you money as a gift or you could inherit the money.
- You could sell an asset, such as shares, to fund your deposit.
- You could use equity in another property you own.
- A first home owner’s grant counts as part of a deposit.
The genuine savings rule is the tricky issue with the options above (and the fact that not everyone can take advantage of gifts or assets). But if money from a gift, sale or inheritance has been sitting in your account for three to six months, most lenders will accept it as genuine savings regardless.
Get a low deposit mortgage
Lastly, you can save a 5% deposit the old-fashioned way and look for a low deposit mortgage. There are many mortgages out there which you can get with a 5% or 10% deposit.
How do you spot a low deposit mortgage? Look at the maximum loan to value ratio (LTV), which should be 90-95%. A 90% LTV means a 10% deposit. A 95% LTV means you only need a 5% deposit.
Government schemes that can help
In order to incentivise people to buy homes, the UK government has several schemes you can take advantage of. However, these schemes are specifically aimed at first-time buyers to help them get on the property ladder.
- Shared ownership. Shared ownership schemes allow you to buy a share in a property through a council or housing association, and pay rent on the part of the property you don’t own. You need a mortgage to pay for your share, which can be between 25% and 75% of the property’s full value. You then pay a reduced rent on the share you don’t own. Later you can choose to buy a larger share in the property up to 100% of its value. This scheme is available for anyone who has a household income of less than £80,000 (outside London) or £90,000 (in London). Only military personnel get priority over other groups.
- Help to Buy: This scheme is aimed specifically at first-time buyers. It allows you to get a low-interest loan towards your deposit in the event that you can’t save a large enough deposit. For example, if you have savings for a 5% deposit, the government will lend you up to 20% ( 40% in London) interest-free for five years. As a result, the mortgage you get will be for 75% (55% in London) of the property’s value. This scheme comes with some conditions.
- Home Ownership for People with Long-Term Disabilities (HOLD). This scheme applies if you have a long-term disability. You can only apply for HOLD if the properties available through the other home ownership schemes don’t meet your needs, for example you need a ground-floor property so you don’t have to climb stairs.
- Older People’s Shared Ownership. If you’re aged 55 and older, you can get help from a home ownership scheme tailored for older people. It works in the same way as the general shared ownership scheme, but you can only buy up to 75% of your home. Once you own 75%, you won’t have to pay rent on the remaining share.
How safe are 100% mortgages?
Probably the most significant risk involved is the risk of negative equity. This is where you owe to your mortgage lender an amount greater than your property is actually worth; for example, if you took out a 100% mortgage and purchased a flat worth £225,000, but the value of the property then dropped to £190,000, you’d still owe the bank £225,000. This can cause serious issues if you then find yourself needing to move, or remortgage. The risk of negative equity will diminish as time passes and you pay off more and more of your mortgage, but it’s important to bare in mind that in the first few years the risk is significant.
Can I borrow more than 100%?
The only way you can borrow more than 100% of a property’s value is by using a guarantor. With a guarantor some lenders will let you borrow up to 110% of a property’s value.
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