All About No Deposit Mortgages

Property affordability is at an all-time low. It hardly seems like a month goes by without new statistics being released regarding the declining affordability of home ownership. However, despite all the doom and gloom, there are various schemes available to help people get a foot on the property ladder without requiring a large deposit, such as no deposit mortgages.

No deposit mortgages have loan-to-value ratios of 100% or more. This means that no cash deposit is required from the borrower because the property they are buying will be purchased in full using the mortgage funds.

This is especially helpful to first-time-buyers who may be struggling to save for the cash deposit usually required on more traditional mortgage products.

With the average mortgage now standing at almost four times an applicant’s salary, and rising, saving for a deposit of 10% or more of the property’s value is an arduous task.

Despite the obvious benefit of not having to save for a deposit, no deposit mortgages do have some shortcomings that must be considered.

The first disadvantage of no deposit mortgages is that they attract higher interest rates than standard mortgage products. Lenders perceive that no deposit mortgages carry an extra risk because the property will not have any equity upon purchase.

This means that if the home owner defaults on their mortgage and the lender is forced to repossess and sell the property at a discount, they may not recover the full balance of the no deposit mortgage.

Another disadvantage is that no deposit mortgages are usually only available to applicants who have a clean credit history and a steady income. This can preclude many potential applicants because adverse credit is quite common and many people have irregular working patterns.

Finally, there are only a small number of lenders who offer no deposit mortgages. They are not a standard mortgage product and are not as widely available as mortgages that require deposits. However, due to the constantly decreasing ability for people to save for a deposit, more and more lenders are beginning to offer no deposit mortgages.

Potential home owners who are able to save for at least a 5% deposit have a much greater chance of securing a mortgage. However, those that are not able to accomplish this task should not despair and should contact an independent mortgage adviser to seek up-to-date information on no deposit mortgages.