Head of Content
Mortgage Advisor & Director
Under most circumstances, you will need a deposit of at least 5-10% to get approved for a mortgage, but what if you only have 1%? Here, you can find out what your options are with 99% LTV, and how to choose the right one.
Can you get a 1% deposit mortgage?
Yes, but only under niche circumstances. Right now, Accord Mortgages is offering a deal for first-time buyers that allows them to purchase a home for up to £500,000 with a £5,000 deposit. Taking out a mortgage on these terms would give you a loan-to-value (LTV) ratio of 99%, but the same product can be used to buy a less expensive property with a larger amount of equity.
This mortgage deal, which is a five-year fixed rate with an initial rate of 5.99%, is only available through a mortgage broker, such as Teito.
The other alternative which, again, is a very niche option, is the Save to Buy scheme. This initiative is for first-time buyers with an initial 1% deposit to put down at the point of purchase.
They can move into their new home and pay rent on it for a period of six months and two years, with all of their rental payments going towards a mortgage deposit until there is enough saved up to qualify for a mortgage based on normal LTV requirements.
This scheme is exclusive to housebuilder Fairview New Homes and is available at its developments in New Hayes, West London, and Epping Gate in Loughton, Essex.
Will 99% LTV mortgages become more widely available?
They could one day be more widely available, as reports suggest the government is considering a scheme to help borrowers with 1% deposit get on the property ladder.
According to The Independent, Prime Minister Rishi Sunak and Chancellor Jeremy Hunt are mulling over an initiative that will make 99% LTV mortgages available in the UK market. The newspaper claimed that the scheme was under consideration for the Spring Budget, but did not materialise during the address.
The scheme is reportedly aimed at young people and is part of the UK Government's ongoing strategy to turn ‘Generation Rent’ into ‘Generation Buy’.
Although most lenders will only consider applicants with 5-10% deposit for a mortgage, there are already alternatives to this rumoured scheme to think about if you have less than this, so it’s worth speaking to a mortgage advisor to find out what your options are right now.
Need a mortgage but have limited deposit? Find out what your options are with Teito
How could the scheme work?
Reports suggest the scheme to introduce 1% deposit mortgages will be Treasury-backed, with the government underwriting a portion of these mortgages. This will theoretically give participating lenders the confidence they need to offer loans at such a high LTV.
The specifics surrounding the initiative are yet to be revealed, but it is thought that first-time buyers are its target demographic, which means it’s possible it will be exclusive to them.
Comparisons have been drawn between the mooted scheme and the UK Government’s previous mortgage schemes, such as Help to Buy and The Mortgage Guarantee Scheme.
If the 99% LTV initiative is indeed similar to the government’s previous support, it is possible that there will be specific requirements, such as the following:
- Limited to specific participating lenders
- Restrictions of property type, such is it being new build exclusive
- A cap on the maximum property value
- A cap on household income (higher earners may be excluded)
- Restrictions on the property usage (primary residences only)
The above criteria are merely examples of the scheme’s potential requirements, based on the restrictions in place for similar mortgage initiatives. We will update this article if/when specifics are announced for 99% LTV mortgages.
Are 1% mortgages a good idea?
Reaction to the news that the UK Government is pondering the launch of 1% deposit mortgages has been mixed within the industry and across the political spectrum. Similarly, Accord's mortgage deal with up to 99% LTV has its own drawbacks to consider.
The table below rounds up the potential pros and cons of 1% deposit mortgages:
|
Advantages |
Disadvantages |
|
Would help many people buy a property who would otherwise be limited to renting |
Risk of defaults, missed payments, arrears and repossessions would be higher |
|
Could boost homeownership as a viable replacement for the Help to Buy scheme |
Concerns that the scheme could negatively impact the UK’s housing stock issues |
|
New alternative to Mortgage Guarantee scheme, Shared Ownership et al provides extra options for first-time buyers |
Interest rates likely to be relatively high |
|
Will enable some people to get on the property ladder much sooner |
Scheme will not address the affordability barrier many first-time buyers face |
These pros and cons are largely based on early analysis of the government’s rumoured plans for 1% deposit mortgages. We will update this article with a list of specific pros and cons when and if this scheme is officially announced.
Other ways to get a mortgage with limited deposit
If you are able to stretch to 5% deposit, there will likely be mortgage options for you, including 95% LTV deals available through the Mortgage Guarantee scheme.
For those who have less than 5% deposit, there are ways and means you would still get approved for a mortgage, under specific circumstances. They include:
- Borrowing a deposit: A very small minority of mortgage lenders will allow you to take out an unsecured loan to serve as all or part of your deposit.
- Guarantor mortgages: If you have a family member or close friend who is willing to support you financially, a guarantor mortgage could be an option, and it is possible to get one with little or no deposit in the traditional sense. Some of these arrangements require the guarantor to secure the mortgage against a property they own and hold equity in, or place savings into an account held by the lender as security.
- Gifted deposits: A handful of lenders are happy to consider mortgages for borrowers with gifted deposits, provided the funds were gifted by an immediate family member (under most circumstances) and the donor states in writing that they will have no have no legal right to the property and the funds do not have to be repaid.
- Right to Buy mortgages: It is possible to get a mortgage with little or no deposit through the Right to Buy scheme, but the circumstances where it can be used are niche. Right to Buy/Acquire would only be an option if you are purchasing a council or local authority home that you are already living in. If this criteria is met, it can be possible to use the Right to Buy discount to serve as a mortgage deposit.
These are just a handful of your potential options if you have less than 5-10% deposit to put down - speak to a mortgage broker for a complete review of every alternative.
How to compare low deposit mortgages
You can compare low deposit mortgages for free on Teito.
Our service allows you to browse rates and deals from lenders across the market for a range of high LTVs and choose the one you want in real time. We have mortgage brokers on hand to make sure you get the best deal and assist with your application - get started here.
Getting a mortgage with less than 1% deposit
If you have zero deposit in the traditional sense, some of the options we have discussed in this article could be available to you. Some lenders will offer no-deposit mortgages to borrowers with guarantors or those using the Right to Buy scheme, for example; but these are not true 100% LTV mortgages since they involve deposit alternatives.
At the time of writing, a very small minority of mortgage lenders including Skipton Building Society are offering 100% LTV mortgages for borrowers with no deposits whatsoever.
Skipton’s ‘Track Record’ mortgage is aimed at borrowers with no deposit but a history of making rental payments on time and clean credit. If you have made 12 monthly rent payments in a row over the last 18 months, it could be one of the options available.
It is, however, recommended that you speak to a mortgage broker to thoroughly review every alternative before considering a no-deposit deal such as Skipton’s offering.
Why choose Teito for your mortgage needs?
You can compare rates and deals on low deposit mortgages for free on Teito, browse products from lenders across the market and choose the one you want in real time. When you’re done, we will refer you to one of our mortgage brokers for guidance.
Here are just some of the reasons why customers choose Teito:
- You can often access exclusive rates and deals
- Our brokers can offer bespoke advice about low deposit mortgages
- We are 5-star rated on leading review websites
- You can secure an agreement in principle in minutes
Ready to compare deals and access expert broker support? Get started here.
Choosing an Adviser
Selecting a qualified and experienced mortgage adviser is of great importance. To choose a suitable adviser, evaluate their qualifications, experience, and reputation, and ensure they are regulated by the Financial Conduct Authority (FCA).
Read reviews from previous clients and make sure they provide a clear explanation of the products and services they offer, as well as the fees and charges associated with them.