Best Schemes for First-Time Buyers
No deposit mortgages for first-time buyers are making a resurgence in the market. These innovative products allow buyers to borrow the entire purchase price of a property without the need for a down payment. But is this option suitable for you? In this article, we explore how no deposit mortgages function and who qualifies for them.
Typically, buyers save approximately 5-10% of the property’s value to use as a down payment for their mortgage. However, with a no deposit deal—also referred to as a 100% loan-to-value (LTV) mortgage—a financial institution lends you the full amount needed for your new home. This can be a significant advantage for those who struggle to accumulate a deposit, although many experts voiced concerns about such mortgages after they were largely withdrawn following the 2008 financial crisis.
In 2023, Skipton Building Society reintroduced a no-deposit mortgage, marking the first of its kind in over 15 years. Currently, there are 17 different no deposit mortgage options available. Some of these options may require you to have a family member or friend serve as a guarantor in case you face difficulties making payments. For instance, Halifax offers a Family Boost deal, allowing a family member to contribute 10% of the purchase price into a three-year fixed-term savings account as collateral. Their savings will be returned, along with interest, once the three-year term concludes, provided that all repayments are made on time. This mortgage will feature a fixed interest rate for three years.
To qualify for such deals, you may need to be purchasing a new build property or utilizing government schemes like Help to Buy, shared equity, shared ownership, or the Right to Buy scheme. Additionally, Barclays offers a similar product known as the Family Springboard Mortgage. Skipton Building Society also presents the Track Record Mortgage, which is designed specifically for tenants aged 21 and above and is exclusively for first-time buyers. This mortgage does not mandate a guarantor; instead, Skipton evaluates your history of rent payments to determine how much you can borrow, with a fixed interest rate for the first five years.
Is a No Deposit Mortgage Right for You?
Nicholas Mendes, a mortgage expert at John Charcol, shared with The Sun that no deposit mortgages can be “life-changing” for first-time buyers. He commented, “In today’s market, saving tens of thousands while managing rising rent, bills, and everyday living expenses is not realistic for many young individuals.” He further emphasized, “These products can be transformative for first-time buyers, enabling them to purchase homes sooner rather than delaying their dreams for years to save a deposit—especially as house prices continue to rise.”
The combination of stagnant wages and escalating house prices has made it increasingly challenging for buyers to enter the property market, making these schemes particularly appealing.
What Are the Risks of a No Deposit Mortgage?
However, it’s essential to recognize that no deposit mortgages come with an elevated risk of falling into negative equity. This occurs when your home’s market value drops below your outstanding mortgage balance, complicating the process of selling or refinancing your home. Alice, a personal finance analyst at Bestinvest by Evelyn Partners, cautioned potential buyers about this risk, especially as “house price growth may slow in the coming months” following the expiration of stamp duty relief on March 31. She added, “Negative equity can trap homeowners in their mortgages, as they may have to pay to sell their own property, increasing the risk of repossession if they cannot meet their repayment obligations.”
Another critical consideration is that interest rates for no deposit mortgages are generally higher compared to those requiring a down payment. For example, Skipton’s Track Record Mortgage has an interest rate of 5.44% for five years. In contrast, if you can manage to gather a 5% deposit, you may secure a fixed rate of 4.96% for five years with Lloyds Bank. Alice advises that the larger the deposit a first-time buyer can afford, the better the mortgage rates they can access. “This not only secures better interest rates but also provides some level of protection if property values stagnate or decline,” she stated.
Another alternative for buyers is to “extend the mortgage term” to 30, 35, or even 40 years. “This approach can effectively reduce monthly repayments, making a desired home more affordable,” she added. Bear in mind that while this may lower monthly costs, it could result in higher overall interest charges. If you are interested in extending your mortgage term, it’s advisable to discuss this option directly with your lender.
What Help Is Available for First-Time Buyers?
Embarking on the journey to homeownership can feel overwhelming, but various schemes exist to assist first-time buyers in achieving their goal of owning a home:
- Help to Buy ISA – A tax-free savings account in which the government adds an extra £50 for every £200 saved, with a maximum bonus of £3,000 available upon moving. While these accounts are no longer open to new applicants, existing account holders can use them until November 2029.
- Help to Buy Equity Loan – The government can lend you up to 20% of the home’s value—or 40% in London—after you’ve made a 5% deposit. This loan complements a regular mortgage but is only applicable for new build properties.
- Lifetime ISA – A government scheme that permits individuals aged 18 to 39 to save tax-free and receive a bonus of up to £32,000 towards their first home. You can save up to £4,000 annually, with the government adding a 25% bonus on top.
- Shared Ownership – This arrangement allows you to co-own a property with a housing association, enabling you to purchase a portion of the property while paying rent on the remainder. You can buy between 25% and 75% of the property, but options are limited to specific properties.
- Mortgage Guarantee Scheme – Introduced on April 19, 2021, this scheme allows applicants to secure 95% mortgages with only a 5% deposit, applicable for homes valued up to £600,000.