No Deposit Mortgage UK

Mortgages are loans you borrow from a mortgage lender to buy a property. You'll eventually pay the loan back with interest, usually via an arrangement such as a standard monthly payment. Alternatively, you can just pay the interest monthly and then settle the capital in one lump sum. This is called an interest-only mortgage.

Mortgage deposits are typically calculated as a percentage of the property's value. You usually save up the mortgage deposit then borrow the remaining balance to cover the rest of the property's purchase price. Typically, the smallest deposit you can put down is 5%, which means if you were purchasing a home for £200,000, you'd have to save £10,000 for a deposit. The mortgage would have an LTV (loan-to-value) of 95%, as it would be covering 95% of the property purchase.

The bigger your deposit, the more likely you'll be accepted for a mortgage and the better the products and therefore interest rates available to you. The most competitive interest rates on mortgages are typically those where the buyer has put down a deposit of at least 40%. This would be £80,000 for a property valued at £200,000 – an LTV of 60%. Our mortgage repayment calculator will give you an idea of your monthly mortgage payments based on the interest rate. Don't forget, you'll need to provide proof of your mortgage deposit.

No deposit mortgages have LTVs of 100%. A mortgage's LTV represents the percentage of the property's value purchased with money borrowed using a mortgage.

With no deposit, the mortgage covers 100% of the purchase price of the property. For example, if the property costs £200,000, you would borrow £200,000.

As the lender typically still needs some security, besides the property itself – instead of giving a traditional deposit – usually one of your family members or close friends either has a charge added onto their property or puts money into a linked savings account with a lender. They don’t need to make any payments towards the charge if they choose that option or they can earn interest on their savings if they opt for the linked account. This security acts as a kind of placeholder and can be reclaimed by the family member after a fixed period of time during which the borrower has made all the monthly payments and met a certain LTV.

A new product has been introduced by Skipton, whereby a first time buyer who has a track record of renting for at least a year can secure a 100% mortgage on that property. Find out if you're eligible for this kind of product by speaking to a mortgage broker.

Securing a no deposit mortgage is an attractive option for those who haven’t had the chance to save for a deposit. However, even though these deposit free mortgages don’t require an upfront deposit, eligibility is still determined by several key factors. Lenders will closely scrutinise your financial situation to ensure you’re a reliable borrower. 

Stable Income 

First and foremost, a stable and consistent income is essential. Lenders want to see evidence that you can maintain regular mortgage payments, whether you’re employed or self-employed. 

Strong Credit History 

Your credit score also plays a crucial role in the decision-making process. A strong credit history shows that you have managed your finances responsibly in the past, which makes you a more attractive candidate for a mortgage. If your credit score is less than ideal, it’s worth taking steps to improve it before applying for a no deposit mortgage. Simple actions like paying off existing debts and ensuring bills are paid on time can make a significant difference. 

Affordable Outgoings 

Affordability is another key factor. Lenders will assess your financial obligations against your income to determine how comfortably you can manage the monthly mortgage repayments. This involves calculating your debt-to-income ratio, and if you already have substantial financial commitments, it might affect your chances of approval. 

Ability Cover Additional Costs 

Additionally, while no deposit is required, lenders often expect you to have savings to cover additional costs like solicitor fees, valuation fees, and other upfront costs associated with buying a home. These fees can quickly add up, so showing that you’re prepared to handle them increases your chances of approval. 

Security from Family Member 

Another significant aspect of no deposit mortgages is that a family member or close friend is typically needed to provide security. This might be through a charge on their property or by depositing funds into a savings account with the lender. The individual offering security must also meet the lender’s financial criteria. This form of support provides the lender with extra reassurance, reducing the risk associated with lending 100% of the property’s value.

While a no deposit mortgage means you don't have to spend years saving for a deposit, there are 3 key drawbacks to keep in mind:

1. You'll usually need to find a relative or friend with enough savings or equity to put up security for you. If you find someone willing to help, their home or savings might be at risk should you fail to meet your mortgage payments
2. 100% mortgages tend to have higher interest rates than normal mortgages. You may also find that application fees and lending charges are higher
3. If your house falls in value, you might be left with negative equity, which means the value of the loan secured on your home is larger than your home's value. The charge or savings contributed by your family member would then be locked away for longer

Improving your chances of getting approved for a no deposit mortgage involves taking proactive steps to strengthen your financial position.