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Buying a home in the UK can be tough.
One of the main hurdles is building a big enough deposit to be eligible for a mortgage, particularly if you have rent and bills to pay whilst you’re trying to save.
In this guide we’ll discuss 100% mortgages in the UK and alternative options if you’re struggling to build a deposit.
What if we told you that there is a possibility to secure a 100% mortgage?
Yes, you read that right!
Here’s an overview:
A 100% mortgage means that the loan you take out will cover the total value of the property. If you’re buying a property for £400,000, your mortgage would also be £400,000.
This offering may be attractive to first time buyers who have been stuck in the cycle of renting and paying bills, struggling to build a deposit.
This may otherwise be referred to as a ‘100% LTV mortgage’ or a ‘no deposit mortgage’.
At the time of writing (May 2023), there is one lender who can consider a 100% mortgage in the UK for first time buyers.
For this particular product, you can either proceed with a mortgage with no deposit at all, or have a small deposit which is less than 5%.
There is strict eligibility criteria in place, mainly being the following:
Let’s take a look at how a working example might work:
Purchase price: £400,000
Loan amount: £400,000
Mortgage term: 35 years
Repayment method: Capital and interest
Interest rate: 5.49%
Product: 5 year fixed
For this example, the monthly payment would be £2,143.88.
Assuming the above criteria is met, the applicant(s) may be eligible for this product providing that their average rental payments over the past 6 months are equal to or higher than £2,143.88.
Also, as the maximum lending applied to this product is 4.49x income, the minimum application income would need to be just under £90,000 (full affordability checks apply).
Speak to your mortgage adviser to discuss more detail on eligibility criteria and whether this might be a suitable product for you.
At Rosehill, we take pride in building long-term relationships with our clients. We don’t see ourselves as just a mortgage broker, but rather a trusted partner who will be with you every step of the way.
At Rosehill, we take pride in building long-term relationships with our clients. We don’t see ourselves as just a mortgage broker, but rather a trusted partner who will be with you every step of the way.
One of the main risks when it comes to taking out a 100% mortgage, or proceeding with a relatively low deposit in general, is falling into ‘negative equity’.
Negative equity is where the value of your home or property falls below the amount owed on your mortgage. So, if you sold your home or property whilst in negative equity, you’d still owe the lender some money.
Hence, the lower your deposit, the higher risk you have of falling into negative equity. Therefore a 100% mortgage is at highest risk.
There may be other forms of no deposit mortgages available, depending on your circumstances.
Most of these options aren’t technically no deposit mortgages, but they can involve contributing none (or little) savings of your own.
For any of these options, be sure to discuss with your adviser whether it’s a suitable option for you.
Some lenders can consider an application where parents (or in some cases a friend) gifts you the full deposit amount, so you wouldn’t necessarily need to fund the deposit yourself.
In the vast majority of circumstances this would need to be a gift, not a loan.
It is possible that the Vendor (the Seller) may wish to gift you some of the equity in the property, which can act as your deposit.
However, in most cases, lenders will typically require a minimum cash contribution from you as the buyer, so this might not be a no deposit mortgage option.
If you own another property, you may be able to remortgage this property and raise additional funds to contribute towards the deposit for your new purchase.
There are some guarantor mortgage arrangements whereby a family member (or in certain circumstances a friend) may be able to support your application.
These arrangements typically either involve the guarantor putting savings into a linked account, or by agreeing for the lender to have a charge on their property. If the lender has a charge on the guarantor’s property and you do not keep up with the mortgage repayments, the lender may repossess their property.
It is therefore a common requirement or advisory for the guarantor will to seek independent legal advice in this arrangement.
If you are a council tenant looking to exercise your Right to Buy, you may be eligible for a mortgage with no deposit.
A Right to Buy mortgage deposit can be the discount you receive, so it’s not technically a no deposit mortgage, however you may not be required to contribute any cash yourself.
Here’s some more alternatives to a 100% mortgage or no deposit mortgages, for those who aren’t comfortable with the options listed above (or are not eligible).
If you’re not comfortable with having a 100% mortgage, or if you’d like a larger selection of options and more preferential interest rates, you may wish to wait a little longer to build a larger deposit.
Once you reach a 5% deposit, more lenders can consider a case.
From there, each 5% increase in your deposit will typically result in better interest rates (to a certain extent), and a larger selection of lenders may become available.
Shared ownership may be a suitable alternative if you’re struggling to save a deposit for a standard purchase.
The shared ownership scheme allows you to purchase a percentage share of a property, with a Housing Association owning the remaining share. You will then pay rent to the Housing Association for the share you do not own.
Although most lenders would require you to contribute a minimum of 5% deposit for the share you’re purchasing, it may be possible in certain cases to obtain a 100% mortgage (100% of the share you’re purchasing).
If you are looking to purchase a property to rent out, and you need a mortgage to do so, you’ll need to arrange a buy to let mortgage.
However, the 100% mortgage mentioned above is only currently available to first time buyers who are buying a home to live in.
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As a mortgage is secured against your home or property, it may be repossessed if you do not keep up the mortgage repayments. Think carefully before securing any other debts against your home or property. The Financial Conduct Authority does not regulate commercial buy to lets and some forms of commercial mortgages. You may have to pay an early repayment charge to your existing lender if you re-mortgage
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The guidance and/or advice contained within this website is subject to the UK regulatory regime, and is therefore targeted at consumers based in the UK. The purpose of any content on this site is to provide technical and generic information and should not be interpreted as a personal recommendation or advice.
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