No Deposit Mortgage

Podcast approved by The Openwork Partnership on 23/09/2025.

Are interest rates higher on no deposit mortgages?

Yes, interest rates on no deposit mortgages are generally higher. This is because they present a greater risk to lenders, as they finance the full property value. A 100% Loan to Value (LTV) means the lender has no initial stake, so they charge more to offset this increased risk. This, of course, leads to higher monthly payments and greater overall borrowing costs for the borrower.

How much can I borrow with a no deposit mortgage?

Currently (in September 2025), one lender’s scheme (Skipton Building Society) has a maximum cap of £600,000.

Do I need to pay extra fees?

Skipton Building Society currently offers a no deposit mortgage for first-time buyers, providing assistance to those without a deposit. There are no arrangement fees; however other fees associated with the purchase include the following:

• Completion Fee: This could range from £20 to £95 and will be detailed in the mortgage illustration.
• Early Repayment Charge: If you end your deal during the initial period, a percentage of the loan will be due as a penalty.
• Valuation Fees: These are required to establish the property’s value.
• Mortgage Advisor Fees: A mortgage advisor may charge for their services and advice.

Are repayments higher on a no deposit mortgage?

Yes, your monthly repayments will be higher with a no deposit mortgage. This is because you’re borrowing the entire property value, and lenders charge a higher interest rate to reflect the increased risk they’re taking on.

Can I go into negative equity with a no deposit mortgage?

The primary drawback of 100% mortgages is the risk of negative equity, which occurs when the property value drops below the outstanding mortgage amount.

For example, if you bought a £400,000 property with a 100% mortgage and its value fell to £380,000, you would owe the bank more than the property is worth. In contrast, with a 90% mortgage, your 10% deposit would likely keep you in positive equity even if the value drops.

The newer your mortgage, the higher the risk of negative equity due to falling house prices, as initial monthly repayments primarily cover interest rather than the capital.

While negative equity is a concern, if you are prepared to remain in the property until its value recovers, or can rent it out, you might navigate any fluctuations. However, if you need to sell, you could be responsible for making up any shortfall between the sale price and the amount owed.

Another disadvantage is that negative equity can prevent you from remortgaging to a different lender or securing a better deal. It’s crucial to remember that, as with any mortgage, your home may be repossessed if you don’t keep up with repayments.

What are the risks of borrowing 100% of the property value?

Beyond potential negative equity, you might face higher interest rates and fees due to increased lender risk, and a reduced property budget. If using a guarantor, they could bear a greater financial burden, although this specific scheme doesn’t require one. These factors can hinder future sales and lead to higher overall costs. However, it’s a trade-off; you can get onto the property ladder much quicker than saving for a deposit over several years.

What are the alternatives to a no deposit mortgage? Is it better to save for a deposit instead?

Saving even a small deposit, ideally 5%, can significantly open up your mortgage options. Many mainstream lenders offer 95% Loan to Value (LTV) mortgages when you have this initial contribution, leading to a wider choice of lenders, less stringent criteria, and potentially better interest rates.

Additionally, schemes like ‘Deposit Unlock’ allow for 95% mortgages on new-build properties. For those in the Armed Forces, ‘Armed Forces Help to Buy’ provides an interest-free loan, up to £25,000, which can be used towards a deposit.

‘Deposit Boost’ involves a loved one releasing equity from their property to provide you with a deposit, requiring two separate mortgages. Similarly, a ‘Deposit Loan’ from a family member helps you get on the ladder, either as an equity loan where they own a percentage of your property (repaid when sold) or as a gifted deposit.

With a gifted deposit, the lender typically requires a declaration from the gift-giver stating they have no interest in the property and don’t expect the money back, as this affects affordability. This is often the most common and straightforward solution for our clients.

While shared ownership and shared equity are also options, they both require a minimum deposit.

Can I switch to a different mortgage later?

The main risk of a no deposit mortgage is negative equity. However, once you have at least 5% equity, either through repaying 5% of the loan or if the property value has increased by 5%, you’ll be able to seek better deals from other lenders. Most mainstream lenders offer 95% loan-to-value mortgages.

How can a mortgage broker help here?

Preparation is crucial for this complex scheme. It’s essential to speak with your mortgage advisor and establish a plan if you don’t currently meet all the eligibility criteria.

Approved by The Openwork Partnership on 23/09/2025.