How to Get onto the Property Ladder without a Deposit

How to Get onto the Property Ladder without a Deposit
25 Mar
2020

When it comes to applying for a mortgage, you need to have a deposit size – at least 5% – that goes up to 20% in case of a bad credit rating. A deposit size is a must to buy a house as no mortgage lender will give you 100% of the value of your property.

Remember that mortgage with no deposit does not mean a 100% mortgage. 100% of mortgages are not available nowadays as it increases the risk of falling into an endless circle of debt. You will not get the mortgage at competitive interest rates.

Another risk associated with 100% loan-to-value is you could end up with negative equity. If the value of your house dropped, it would be worth less than the amount you owe. If you had to sell your house, you would never be able to pay off your mortgage.

It is generally suggested that you should have a deposit size as much as possible to take out a mortgage as it keeps the loan-to-value as much low as possible and increase the chances of getting money at affordable interest rates.

Well, what if you do not have a deposit size? The good news is some mortgage lenders do not flinch from signing off on a mortgage application even if you do not have a bad credit rating. If you want to buy a house without a deposit, you can consider the following alternatives.

Guarantor mortgages

You can get a foot onto the property ladder without turning in a deposit if any of your acquaintance including your family members consents to have their names on the application as a guarantor.

This is essential to note that your mortgage company can claim their right over the guarantor’s house in case you fail to pay back the amount. Your guarantor will also have to put their savings as collateral to the mortgage lender. They will not be able to withdraw money until a stipulated time.

Use a personal loan as a deposit

Buying a house without a deposit can be quite difficult, but this does not need to be a headache as personal loans can serve as a deposit for your mortgage. Of course, it sounds to be a bit riskier. Handling two types of debts simultaneously is not as easy as falling off a log.

Your mortgage lender may be skeptical about your repaying capacity. Well, it depends on you how you convince your lender. If you prove that you are able to pay off the mortgage along with other debts and regular expenses, you will likely have the mortgage signed off on.

Mortgage lenders do not generally accept applications with deposit loans. The rate of approval is likely to be higher if the money is given to you as a gift. Try to seek financial help from your parents if they could offer you money to turn in as a deposit for your mortgage.

Note that some online resources claim that you can get fund your deposit with a credit card. This is truly outlandish. It is very rare to see anybody doing so, and not all credit cards permit you to do so. However, mortgage lenders can consider credit cards to top-up a cash deposit.

Shared ownership scheme

Shared ownership allows you to buy a portion of a property between 25% and 75%. The rest portion is retained by your local authority to which you pay rent at a reduced rate. You need to meet the following conditions to be eligible for this scheme:

  • First-time borrowers and people who used to own a home and cannot afford now.
  • The combined household income cannot exceed £80,000 and £90,000 in London.
  • You rent a housing association property.

Right-to-buy scheme

Right-to-buy scheme aims to help borrowers who have been a public sector tenant for at least three years. This scheme allows you to buy a house at a discounted price. However, you can claim the right-to-buy discount only if:

  • It is your only home.
  • The property is self-contained.
  • You do not owe to lenders.
  • You are not on the verge of insolvency.

Joint mortgages

If you take out a joint mortgage, the deposit cost will split in half. Everyone named on the mortgage will be responsible to make the payments. Anybody can be a joint mortgage holder – your friend, family member or business partner.

If you do not have a deposit and want to get onto the property ladder, you can use any of the methods mentioned above. Although there are some options available to take out a mortgage without a deposit, you should try all your best to arrange money for a deposit. The higher the deposit, the lower the interest rate will be. Try to save enough money for a deposit.

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