The cost of living crisis in the UK has made it more challenging for everyday people to save up large sums of money. When purchasing a house, a mortgage lender typically wants to see a sizeable deposit or salary to feel confident that you will repay their loan. But what happens if you don’t have the funds to make a deposit? Is it possible to get a mortgage without one? Read our blog below to find out.
Can I Get a Mortgage Without a Deposit?
It is extremely rare for a lender to grant someone a 100% loan-to-value mortgage on a house, in which the entire price of the house is borrowed. However, there are four other routes you can opt for which enable you to buy a property without making a deposit. These four options are:
- Guarantor mortgages
- Family link mortgage
- Using a personal loan as a mortgage deposit
- Gifted deposits
In the blog below, we have explained exactly what each of these four options means and how it enables you to secure a mortgage in the UK without making a deposit.
Option 1 – Guarantor Mortgage
A ‘guarantor mortgage’ is when someone close to you (usually a member of your family, or a close friend) guarantees that they will repay the amount of money borrowed, if you are unable to do it yourself. Sometimes, this person might be required to place funds equal to the required deposit in a savings account, which is held by the mortgage provider.
Most lenders require that the guarantor lives in the UK, and have their income paid in pound sterling, with a UK bank account. There are also rules which must be followed to confirm that the guarantor is willingly agreeing to the situation. For example, they often need to confirm in writing that they have received independent legal advice. This is because a guarantor is only released from their responsibility when the borrower is in a position to cover the entire mortgage or if the loan is repaid in full.
It is recommended that all parties seek independent financial and legal advice before choosing this option.
Option 2 – Family Link Mortgage
A family link mortgage is ideal for any potential homeowners who can afford the monthly payments but are struggling to raise enough for a deposit.
With a family link mortgage, you will be granted a 100% mortgage: 90% on the house you wish to purchase and 10% of your family member’s property. In most cases, the mortgage on your family member’s property needs to be paid within five years, although this time period can differ. Once the 10% mortgage on your family’s property is paid off, you will then continue to pay the monthly payments on your mortgage as usual.
Different lenders have varying requirements on whether the individual must be a family member (i.e. your parents) or whether a friend is acceptable. The interest rates on each mortgage, and the terms and conditions of the deal, will also vary significantly. You should do thorough research and get assistance from an expert before jumping into a decision.
Option 3 – Using a personal loan as a mortgage deposit
It is possible to take out a loan to pay for your mortgage deposit. Of course, this will have to be paid back with interest further down the line – but some lenders may be willing to accept these circumstances, as long as you can prove that meeting your monthly mortgage payments will not be a problem.
Some people opt for this route if they do not have enough money for a deposit in the short-term, but feel certain that they will in the near future. While many people would recommend waiting until you have these anticipated funds, so that taking out a loan is not required, personal circumstances means that this isn’t always an option for people – sometimes they have to move house immediately.
Option 4 – Gifted Deposits
A ‘gifted deposit’ is when someone gifts money towards a buyer’s deposit – in most cases, it is done by a family member or friend. However, it is possible to receive gifted deposits from vendors, developers and landlords.
This route is only achievable if you have a family member or friend who can afford to gift you a sizeable amount of money. This gift will make life easier for the person buying the house, because it means that their monthly repayments will be reduced, and they will spend less money on interest while paying back the mortgage.
Gifted deposits are arguably the most common of the four options outlined in this blog. People often describe ‘the bank of mum and dad’ when discussing this option, because UK parents have been known to gift their children sums of cash so they can buy a house of their own, without expecting the money back.
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