First-time buyers guide to no deposit mortgages
Getting on the property ladder can be difficult, especially for young buyers attempting to buy their own home. Many people can’t afford to pay a large sum of money for a deposit, leaving them renting when they’d much rather own their own home. Don’t panic if you’re unable to buy with a regular mortgage, there are options for you, including the deposit-less type known as a 100 per cent mortgage. Not sure where to get started? Follow this quick guide to no deposit mortgages.
Is it possible ?
It is possible to get a deposit-less mortgage, but you’ll need some help along the way. Unfortunately, this type of mortgage isn’t as readily available as it used to be. In most cases, 100 per cent mortgages require a guarantor to ensure you can keep up with monthly payments. Your guarantor should be someone who trusts you, as they’ll have to use their own property or savings as security.
There are risks involved with this, so make sure they fully understand what they’re getting into before you proceed with one of the two usual methods. They won’t own any of your property, but they will have to agree to make repayments on your behalf, should you fall behind.
Method one: Property
If your guarantor opts to use their own home as security, a legal charge must be registered on the property. This charge means they’ll have to cover any payments you’ve missed, and comes with a chance of repossession.
This would only happen if you missed too many payments, although it’s well worth asking your lender about this as they all have different standards. If you stick by your agreement and repayment plan, the guarantor won’t have to pay a penny.
Method two: Savings
This type of mortgage allows the guarantor to keep their property out of the equation. It does, however, mean that they’ll have to put their savings in a separate account held by the provider. It can sometimes earn interest, but how long the savings remain in the secure account, depends entirely on the agreement.
Who can be a guarantor ?
Some lenders may be picky about who can act as your guarantor, whereas others will allow close friends. Parents and grandparents are amongst the most recommended, but other family members are typically deemed acceptable too. Check with your specific lender to make sure, but a guarantor typically needs to have:
- A decent income to show they’ll be able to cover repayments should you miss any
- High credit rating to prove a financially stable background
- Their own property or at least enough equity that matches the minimum amount given by the lender
What can you do if you don’t have a guarantor ?
If you find yourself struggling to secure a guarantor, it may be worth waiting until you’ve raised a small deposit and checking your options then. Created specifically to cut the cost of deposits, there are plenty of other schemes for first-time buyers that can help you get on the property ladder. This includes a Help to Buy ISA, equity loans and other government-backed schemes. Take a good look at these before you apply for a 100% mortgage, as you may find an alternative that works better for you.