Explore the Benefit of Mortgage with No Deposit
Do you not have a deposit to avail a mortgage? You still can borrow funds with 100% LTV mortgage or mortgage with no deposit scheme. This facility is very rare in the marketplace where maximum lenders demand at least 5% deposit. A very few mortgage lenders in the UK are accepting mortgage applications with no deposit.
100% LTV mortgages are also called as guarantor mortgages, and they are more favourable to the first-time buyers. Individuals who want to mortgage after divorce are also finding this product useful to their financial interest.
Under the scheme, the borrowers can obtain the full amount needed to a home purchase, but without any deposit. However, they have to follow strict pre-requisites to apply for this, and those criteria differ between lenders.
Features of No Deposit Mortgage
- You can purchase a new house without depositing any amount if a guarantor is standing with you.
- The person that you have brought as a guarantor has to keep their property or savings as the security. However, missing any mortgage payment could result in the lender's possession to their asset.
- The mortgages with 100% Loan-To-Value are usually offered on the higher interest rates than the deposited mortgage.
Qualifying Criteria for 100% LTV Mortgage
- The borrower should have higher credit rating
- Job stability is vital with sufficient income
- Trustworthy repayment history or managing finance
I Am A First Time Buyer- How Can I Buy My First Home With No Deposit?
You should rethink if you are unable to deposit any amount to obtain a mortgage. Some banks and lenders have deals under 100% mortgages, especially for first-time buyers. It means you comfortably buy your new home without a deposit, but you need to have any of these backups:
A Responsible Guarantor
To get on the property ladder for the first time, you must have the guarantor with a good financial record. The person, who is taking your guarantee, has to put their property or savings as the mortgage collateral. It is also called guarantor mortgage.
The essential qualities that required are:
- The Guarantor should be a homeowner with a minimum 30% equity in your house
- Earning should be high to cope up with the monthly mortgage payments if the primary borrower is unable to make the repayments
- Having a healthy credit record of winning the trust of the lenders
The Way of Joint Borrower
Around 60% of people in the UK take help from their parents while buying their home. However, that is feasible in the case of first time buyers only. You can opt for the same option while applying for the mortgage. The most prominent advantage is getting the better interest rate because the parent's name is not included on the deed. However, such facility may not work if someone wants to buy a second home.
Pledging Home or Savings as a Mortgage Security
To secure a mortgage with no deposit, your guarantor should either need to put their property as the security or can use the savings. However, you are not going to put the total value of your home as collateral; instead, it should be according to a set percentage (for example, 25%) by the lender.
On a similar note, if you as a guarantor are putting your savings as the security, you may not be allowed to transact your savings during the mortgage term. Directly or indirectly, the lender has the charge on to your savings.
How to Get a Mortgage with Bad Credit and No Deposit
It would be a considerable risk for the lenders to grant a mortgage with bad credit and no deposit. Hardly a few lenders would agree on to this, but still, there are a very few mortgage providers in the UK taking that risk. The only criterion is to ensure the repayment on time, and it can only be done through functional income status.
However, there is another possibility of getting a mortgage on these double benefits. Let us understand it with an example:
For example, Chelsea wants to buy a house for her dad worth £125,000. As she has poor credit and no deposit is available to apply for a 100% LTV mortgage, Chelsea cannot opt for the full value to borrow. If her dad ‘gifts’ 5% deposit to her, i.e. £6250, then she will need £118750 to mortgage. Therefore, Chelsea has the approval chances with a 95% mortgage.
If you follow the same, then Shine Mortgages knows those lenders, who are accepting this and approving the mortgage applications of the borrowers.
Are There Any Drawbacks To No Deposit Mortgage?
As mentioned above, no deposit mortgage is very infrequent in the marketplace, and the risk chances increase automatically. The possible drawbacks of this scheme are as such:
- The borrower has applied for 100% mortgage that means full of property value. But if the property rates fall in between, you end up borrowing more than 100% of the actual amount. Therefore, negative equity is the significant concern here.
- If you fall into the negative equity and later, you want to remortgages or moving home, then that negative equity will automatically shift to your next mortgage. It means you may lose the trust of the lenders.
- Losing the home of you or your guarantor is also the significant risk involved in this type of mortgage. It usually happens when you are not able to make a monthly repayment.
- The high-interest rates are the concern that can affect your mortgage chances. As you are buying a home for the first time, it can be challenging for you to hefty payout amount as the interest rates.
What are the Alternatives to 100% mortgages?
The mortgage with no deposit is more costly than 5% deposit mortgage. But the financial constraints force you to apply for this option. It does have some benefits too alongside disadvantages, but you can look over its alternatives as well. These may be:
- Gifted deposit - A gift of pounds from your parents that you can further use to pay the required deposit. It is quite a common culture in the UK. However, varied lenders have varied conditions and limits that can be offered as the gifted deposit. The family member needs to sign a declaration document that says there is no need to repay the gifted money.
- Government support schemes - You can opt for some government schemes such as help-to-buy for first-time buyers, shared ownership, benefits for long-term disabilities and many more. Do not forget that you need to prove your repayment capacity. The advantage of such schemes is that the initial costs are quite low than those offered by the other high street and private lenders.
- Sell your asset - You can also sell your asset and utilise the earned money to pay the deposit. This tip is majorly useful if you have an asset that gives no or less profit. Why not use it for a useful purpose and utilise the money earned through sale, to pay a significant deposit.
- Equity - You have the option of using the equity in another property that you own. People with higher equity always have brighter and sharper chances of approval. After all, it shows your smart management of money and wise decisions on investment.
- Joint mortgage – It is about applying for a mortgage with a co-applicant. With the income of two people, it is always easier to qualify for the funds quickly. Your partner or any family member or even a known, can apply for the mortgage with you. The joint applicant is equally responsible for the debt. The co-applicant is much accountable as compared to a guarantor.
Despite the substantial risk of negative equity, the trends of 100% LTV mortgage in the UK are massive nowadays. As being a reliable UK mortgage broker, Shine Mortgages displays all the offers on these mortgages from the prominent lenders. You can make your choice anyone from them and fulfil your financial purpose.
How To Get A Mortgage Without A Deposit FAQs
What is a 100% LTV mortgage?
A 100% LTV mortgage is the type of property loan that needs no minimum deposit money of 5% of the property value. The applicant borrows the funds on his affordability. He needs to be very strong in financial efficiency. The credit score should be good in fact; excellent credit score performance gets more appreciation. The guarantor of the applicant too should have an excellent current income status and good credit rating. Usually, the 100% LTV is offered by the lender to the existing customers. However, with the help of a broker, you can achieve that as a first-time buyer too. Shine Mortgages facilitate that to its customers.
Do 100% mortgages still exist?
To be rational, 100% of mortgages are not very common in the mortgage market now. But few lenders offer them, however; it is difficult to find them, especially those that suit your overall financial conditions. A broker can help you get to the mortgage provider that offers ‘no deposit’ loan deals.
Shine Mortgages, the online broker can always help, as it has a broad panel of 90+ lenders with proper scrutiny of your finances to find the best deal. Also, you can stay sure about a good bargain on the interest rates.
Can you use a loan as a mortgage deposit?
Yes, sometimes people avail a short-term loan like a personal loan to pay the deposit. The loan products that have no constraint of purpose can be easily used for the down payment. However, applying for credit should not affect your creditworthiness. To qualify for a mortgage, it is necessary to have ample space to adjust mortgage instalments in your repaying capacity.
It is not a new thing, and many borrowers do this for a smooth approval of their property loan. The lenders are majorly concerned about the three things 1) deposit money, 2) repay capacity and 3) credit score. If the loan is not affecting any of these, you can always use it for the deposit purpose.
CAN I GET A 100% MORTGAGE AS A FIRST-TIME BUYER?
Of course, you can get a 100% mortgage as a first-time buyer. There are options available in the market, and with the help of a broker, you can ensure your access to such choices. However, you need to fulfil specific terms and conditions actually to borrow funds without any deposit.
- Your credit score should be excellent
- Your monthly salary should be in a prominent figure
- The household expenses should not be more than 30% of the total income
- The debt-to-income ratio should be 70:30. 80:20 is the idol number
- Your guarantor needs to pledge his saving account with the 5% amount of property value
CAN I GET A MORTGAGE WITH DEBT?
Yes, you can get a mortgage with debt but only on the condition that says your total debt is not more than 60% of your income. Yes, it is about the debt to income ratio in which you cannot cross the minimum limit of 60:40. 60% is income, and 40% is for overall financial commitments. The other condition is you need to have employment stability and a satisfying credit score performance.
If you have scattered with multiple debts, then it is advisable to go for debt consolidation. Many monthly instalments on different interest rates can affect your repayment capacity. Through consolidation, you will have to pay just one instalment and that on a fixed interest rate too. It conveniently makes space to adjust the repayments of a big loan like a mortgage.