100% mortgages

What is a 100% mortgage?

It’s a mortgage that doesn’t require a deposit.

For most loan-to-value mortgages, you pay a percentage of the house’s value upfront (the deposit), and then the lender will pay the rest (the mortgage). For example, for an 80% mortgage, you’d need to provide a deposit of 20%.

For a 100% mortgage, the lender pays the total value of the home, so you don’t need to save up a deposit.

How they work

100% mortgages aren’t common, but there are some niche lenders out there still offering them.

As you won’t need to provide a deposit, most 100% mortgages are guarantor mortgages.

This means you’ll usually need a friend or family member to provide the lender with some security by acting as your guarantor.

Types of no deposit mortgages

Your guarantor can help secure your 100% mortgage one of two ways:

Using their home as security

Your guarantor’s home is secured against a percentage of your mortgage.

A legal charge is registered on the guarantor’s home. This means they’ll have to pay for any shortfall if your house is repossessed and sold by the lender.

It can get complicated if your guarantor has a mortgage on their home. Your 100% mortgage provider will usually limit the maximum combined loan-to-value of the mortgage and the legal charge.

Let’s say your guarantor’s home and the property you want to buy are both worth £100,000.

Your mortgage lender could set a combined loan-to-value of 75%. That means the equity in your guarantor’s home would need to cover 25% of your mortgage, and theirs.

This means your guarantor must have at least £50,000 equity in their home.

Using their savings as security

Your guarantor can put money into a savings account with your mortgage lender – usually between 10 and 20% of the property price. It’ll be kept there for a set number of years. During this time, your guarantor won't be able to withdraw any of the money.

Some savings accounts earn interest. If it does, the interest can sometimes be used to offset some of the interest on your mortgage.

As with using a guarantor’s home as security, your 100% mortgage lender has a legal charge registered on the funds in the savings account. This means the savings can be used to make up a shortfall if your property is repossessed and sold at a loss.

Other types of 100% mortgages

Other ways you can get a mortgage without paying a deposit include:

• Family offset mortgages – parents can put savings into an account which is linked to their child’s mortgage. Unlike with guarantor’s savings accounts, interest won’t be earned
• Family link mortgages – provided by The Post Office. You have a 90% mortgage, and a second 10% mortgage taken out on a family member’s home. You repay the 10% mortgage over five years, and pay off the 90% mortgage over whatever term you’ve chosen
• Family springboard mortgage - provided by Barclays. This works the same way as a family link mortgage

Advantages of 100% mortgages

The main advantage of a 100% mortgage is that you don’t need to save up for a deposit.

While not necessarily an advantage, 100% mortgages can also be an alternative to gifted deposits.

Disadvantages of 100% mortgages

One disadvantage of 100% mortgages is that your guarantor’s home may be at risk if you fail to keep up payments.

It’s also difficult to get approved for a 100% mortgage. Lenders see them as a risky investment. First-time buyers aren’t likely to be approved for them.

Interest rates are typically higher than for other types of mortgages.

There’s a greater risk of negative equity – where you owe more on your home than its worth.

You’ll probably have to agree to get a mortgage indemnity guarantee. This cover pays out to your lender if you default on your mortgage payments.

What is negative equity?

Equity is the difference between what you owe on your mortgage and how much your property is worth.

Negative equity happens when the value of your home is less than the size of your mortgage. In other words, you owe your lender more than your home is worth.

When you have a 100% mortgage, you’re more at risk of going into negative equity. If this happens, it can cause problems if you want to remortgage or move home. You could end up stuck on your lender’s standard variable rate and paying more than you would on a more competitive deal.

There’s less risk as more of your mortgage is paid off and you have more equity, but in the first few years of a 100% mortgage even a slight drop in house prices could make a difference.

How to get a mortgage without a deposit

Firstly, speak to a professional, independent advisor. They should be able to discuss what your options are based on your circumstances and offer tailored advice.

Make sure you have a year’s worth of payslips and account statements. If you’re self-employed, you’ll need proof of income from tax returns over a few years.

You’ll have a wider range of mortgage options if you have good credit. If you can, limit your outstanding debts and try to reduce unnecessary monthly spending.

Avoid buying riskier properties, like those that are of non-standard construction or listed buildings.

What to do if you can't get a 100% mortgage

If you are unable to get a 100% mortgage or can't find a guarantor, there are other options.

Low deposit mortgages (90 or 95% mortgages)

Low deposit mortgages may make saving for a deposit more achievable. But you’ll need a good credit score to be considered.

Help to buy or shared ownership schemes

You could also look into other no or low deposit methods. Schemes like Help to Buy or shared ownership. You’ll still need a deposit for these, but it’ll be low – usually around 5%.

Gifted deposits

A friend or family member can still help with your deposit without a 100% mortgage. They could simply give you the money you’d need for a deposit. This is called a gifted deposit.

Some lenders may have a maximum percentage of the deposit that can be gifted. Your benefactor may also be asked to declare that the money is a gift and doesn't need to be repaid.

New build developer loans

These loans cover homebuilding costs over a short period of time. When the build is complete, you pay off the loan by remortgaging your new home or selling it.

The types of mortgages or loans you’re eligible for will depend on your credit score and financial circumstances.

If you’ve been rejected for a mortgage, don’t apply for another as it’ll damage your credit score. Instead, improve your financial circumstances and start saving for a deposit.

Are 100% mortgages available to first time buyers?

Lenders consider 100% mortgages to be risky, as all the money going into the property is theirs.

Lenders also consider first-time buyers as high risk, so it’s very unlikely they’ll be approved for a 100% mortgage.

Any first-time buyer wanting one will need a friend or family member to act as a guarantor. And even with a guarantor you might not be eligible.

As 100% mortgages normally come with a higher interest rate, it’s a good idea for first-time buyers to look at alternative solutions and try to save for a deposit instead.

Can I get a mortgage with a temporary deposit?

Yes, there are a few mortgage providers who will allow you to have a temporary deposit. This is usually 10% of the value of the property, which needs to be provided by a guarantor, like a parent or relative.

With a temporary deposit, the money gets put into a special savings account for a set period of time. This is usually the length of time it should take the buyer to pay off the same amount of the loan as is in the savings account.

Once this is done, the guarantor can access their money in the account.