How to buy a house with no money for a mortgage deposit

There are several schemes and mortgages available that may help you buy a property without the need for a hefty deposit.

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By

Amelia Glean

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If you want to buy a house but don’t have enough money for a deposit it’s still possible, but it does require some research and planning. Here’s what you need to know.

Think carefully before securing debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.

Can you get a mortgage with no deposit?

In short, yes. It’s possible to get a mortgage without saving for a deposit first, but 100% mortgages are now very rare.

100% mortgages

A 100% mortgage is a loan for the entire cost of the property you’re buying, meaning you don’t need to save up any deposit before you buy the house or flat.

While this may seem appealing, 100% mortgages are risky. If you do manage to secure one, they’re usually more expensive in the long run and come with higher interest rates, higher application fees, higher lending charges, as well as the same fees, interest charges and other costs that come with any other mortgage.

As at March 2019, the only type available is a guarantor or family mortgage.

Guarantor and family mortgages

If you have a relative or friend willing to help you get your house, they may agree to be named on your mortgage as a guarantor and will need to agree to make any repayments you miss.

This could be by either using their own home as security, where your mortgage company would have a charge on your guarantor’s home and could reclaim money from them or even repossess their home if you fell too far behind on repaying your mortgage; or using their savings as security.

In this instance, your guarantor puts a lump sum into a savings account held with the mortgage provider, which uses it as security. Your guarantor cannot withdraw the money until you’ve paid off a certain percentage of your mortgage. Learn more about family guarantor mortgages.

New-build developer loans

If a guarantor mortgage isn’t right for you, another option is to choose a new-build home. Property developers sometimes offer loans which are enough for a deposit when a new-build home they’ve built is bought.

With new-build developer loans, you’ll need to be able to afford your mortgage repayments and also be able to pay off the property developer’s loan as well.

Should you use a bank loan for your deposit?

Bank loans aren’t always advisable because lenders could decide you cannot afford a mortgage as a result. Some lenders will only let you use your savings or a gift towards your deposit and can check your credit record and bank statements to see where your deposit came from.

Paying back a loan as well as your mortgage could also stretch your finances too far.

Other mortgage options

Right to Buy mortgages

Another option is if you’ve lived in a council home for more than three years, you may be able to buy it at a discounted price.

The discount you’re given on your home could be as much as 70% depending on how long you’ve lived there: some lenders will let you use this discount as your deposit.

Joint mortgages

This option may work for couples looking to buy a home with little saved for a deposit. Buying a property with someone else means you can save between you. Your joint income will therefore be higher, meaning you could split the cost of paying your mortgage.

Alternatively, you could get a joint mortgage with a friend or relative who wants to help you get on the property ladder. Learn more about join mortgages.

First-time buyers

If you’re unable to use any of the above options and you’re a first-time buyer, there are several other types of mortgage available to help. These all require a deposit, but this is usually smaller than standard mortgages.

Help to Buy

This scheme provides an equity loan that lets you borrow money for a deposit that’s interest-free for 5 years (up to 20% of the property’s value or 40% in London).

The buyer then puts down a further 5% deposit from their own money and gets a mortgage for the rest of the price.

Shared Ownership

This option allows you to buy a percentage of a property, usually between 25% and 75%. The rest is owned by your local authority or a housing developer and you’ll pay rent on the percentage of the property they own, which means you would have a much smaller mortgage and only need to save for a small amount when it comes to your deposit. Learn more about shared ownership mortgages.

Tips to save for a deposit

Saving for a mortgage deposit is your first step towards buying your own home so it’s important to do everything you can.

Our first piece of advice is to put aside a regular amount every month, which is likely to work better than paying into a savings account because it reduces the temptation of spending the money.

Stick to a budget

Control your finances and work out the maximum you can save each month by carefully planning your spending.

Cut back on your spending

Save more towards a deposit by spending less on things like entertainment and try to find ways of reducing your bills on essentials like gas and electricity.

You could also cut your spending by reducing your rent payments. This could be possible if you’re able to move into a cheaper property, move back in with your family or move to live in a shared property with friends.

Make your money go further with:

  • Existing savings you may have
  • Borrowing from your family or friends
  • Using money given to you as a gift or as inheritance
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