No Deposit Mortgage
09/01/2023
(Last Updated: 09/01/2023)
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7 min read
Key Takeaways
- Most no deposit mortgages require a 'helper' to put up some funds as collateral, but they get this back
- There are some products designed for people who don't have a helper to do this
- AKA: 'Family Mortgages', 'Springboard Mortgages', or 'Offset Mortgages'
What is a no deposit mortgage?
You can buy a home with no deposit using a no deposit mortgage, where the deposit is offset by a helper, which could be a family member or close friend for example, placing a sum equivalent to your deposit into a linked account.
This type of mortgage is often called a family mortgage or a springboard mortgage, both are mortgages with no depositfrom the buyer. The helper does not get legal or beneficial rights over the property.
That sum must remain in the account (invariably one set up for the purpose by the lender), untouched but interest-bearing, for a period, normally a minimum of 3 years.
It is effectively a 100% mortgage from your perspective as a borrower. A lender offering this kind of mortgage product will only make you a mortgage offer if you can prove that you a 'good risk' regarding being able to make the appropriate monthly mortgage repayments.
NB You normally have the option to fund some of the deposit yourself and this would not only reduce the sum your helper has to provide but also means repayments and rates for your mortgage will be less, saving you money in the long run.
How can I get a mortgage with no deposit?
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What are the main selling points of a no deposit offset mortgage?
- As a buyer, you can buy a home without having saved - perhaps for many years - for a home deposit - this makes it particularly attractive to young people in general, who won't have had years to save for a deposit on a home and may either be in their first or second job or have just graduated with the debts that normally accompany having spent years as a student.
- As a helper, you might get a respectable rate of interest (see below) for locking your savings up for a minimum of 3 years when compared to other fixed-rate savings accounts.
What happens if you can't pay?
Circumstances might mean that you miss making a month's due repayment but if you fail to make a stated number of these, perhaps 3 or more, then the lender can retain the funds in the linked account until your mortgage account is up to date.
In order for the funds to be released to your helper, you are often also required to ensure that you don't miss any payments in the 12 months preceding and possibly no more than 2 in the previous 36 months. If you don't, the lender will continue to hold onto the helper's funds for a longer period.
If the worst comes to the worst and your property is repossessed, the lender uses the funds in the linked account to clear any losses on the sale of the property.
Who is a no deposit offset mortgage suitable for?
Any first time buyer or home mover who can make the monthly mortgage repayments on a mortgage and, even though they cannot present a 10% deposit, has a helper who can deposit the same amount of money for the minimum 3 year period.
Your helper could be any of these:
- Mum and Dad
- Other family member
- Friend
- Investor
- Share a Mortgage Investor
How does a no deposit offset mortgage work?
Instead of you providing the 10% deposit, a helper - which might be a family member or friend opens up a linked account with the lender, and they place a sum in the account equivalent to what you would have paid for your deposit.
They then cannot access the funds for a set time period, normally 3 years. When this period passes, they can draw out the money along with the interest that the sum attracted over the period (as of November 2016, we have seen products which offer 1.5% over the Bank of England base rate, i.e. 1.75% at this time).
Examples of these types of mortgages on the market include Barclay's Family Springboard Mortgage and the Bath Building Society's Parental Assistance Mortgage.
You will still have to pay valuation fees and early repayment charges like a regular mortgage and it will have a similar maximum term of around 25 years (depending on your age). You may find, as a niche product, that interest rates are higher.
Your helper is not acting as guarantor, if they have sufficient funds to put a separate chunk into another person's family mortgage, they can with the approval of the lender.
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Frequently Asked Questions
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Written by:
Andrew Boast
Andrew started his career in 2000 working within conveyancing solicitor firms and grew hands-on knowledge of a wide variety of conveyancing challenges and solutions. After helping in excess of 50,000 clients in his career, he uses all this experience within his article writing for SAM, mainstream media and his self published book How to Buy a House Without Killing Anyone.
Reviewed by:
Caragh Bailey
Caragh is an excellent writer in her own right as well as an accomplished copy editor for both fiction and non-fiction books, news articles and editorials. She has written extensively for SAM for a variety of conveyancing, survey and mortgage related articles.
