Getting onto the UK property ladder isn’t easy – and even if you already own a property, saving up a deposit to buy a new one can be a significant challenge.
For many people, the challenge in buying a new house is raising enough money for a deposit, rather than being able to afford the monthly payments. In this situation, you may be wondering: “Can I buy a house with no deposit?”.
This blog answers all the questions you might have on this important topic.
Can You Buy a House With No Deposit?
While it is extremely rare to get a 100% loan-to-value mortgage on a house, where you borrow the entire price of the property, there are still other avenues you can explore which enable you to purchase a house without putting down a deposit.
Many of these options require you to borrow or take money from other sources, and then pay it back. We have outlined these different options in the section below.
How to buy a house with no deposit
There are several options available which allow you to purchase a house without a deposit being immediately available. We have outlined these below.
- Using a personal loan as a mortgage deposit
Some people choose to take out a loan (which they will then have to pay back, with interest, further down the line) in order to pay their mortgage deposit. Some lenders will be willing to accept this, as long as they are confident that you will be able to afford your monthly mortgage payments.
- Guarantor mortgages
A ‘Guarantor mortgage’ is when a family member or close friend secures your mortgage against savings or a property they own. It can also be achieved by placing funds equal to the required deposit amount in a savings account held by the mortgage provider.
Some lenders will offer 100% mortgages if you have a guarantor who is willing to support you.
- Gifted deposits
A ‘gifted deposit’ is when someone gifts money towards a buyer’s deposit. In most cases, this will be done by a family member or friend. However, you can also receive gifted deposits from vendors, developers and landlords.
- Family link mortgage
A ‘family link mortgage’ is when a family member takes out a second mortgage on their property, which is equal to 10% of your property value. This enables you to take out 90% on the property you wish to buy – and you then repay their 10% equity over 5 years, as well as the remainder of the 90% over your chosen term.
Why you might buy a house with no deposit
Almost everyone who purchases a property without a deposit does so because they need to, rather than because they want to. The fact remains that the larger the deposit you put down, the less interest you will have to pay on the amount you borrow.
Therefore, the primary reason someone buys a house with no deposit is because they cannot afford to pay it.
The drawbacks of buying a house with no deposit
There are many significant drawbacks to buying a house with no deposit.
Firstly, the less of a deposit you put down on a property, the more expensive it will be in relation to interest payments. For example, a 40% deposit only has to pay interest on 60% of the property’s value – whereas if you are paying interest on 100% of the house, it will be much more expensive in the long-term. While some people choose to buy a house with no deposit because it is more affordable in the short-term, it will cost them much more in the long-term.
Purchasing a house with no deposit can also limit the options available to you with regard to lenders. Many lenders will not engage with buyers who cannot afford a deposit, or who are taking out a loan in order to do one. This may limit your options over the offer you receive from a lender, as well as the overall quality of service you receive.
Buying a house with no deposit may also add strain to your relationship with a family member or friend, if you encounter difficulty paying them back for a guarantor mortgage, gifted deposit or family link mortgage. You will be under a lot of pressure to make sure you pay them back – and if you come under financial difficulties which makes you unable to pay, they may become extremely unhappy.
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