100% mortgages

f you’re struggling to raise a deposit to get on the property ladder, it may be possible to buy a home with a 100% mortgage. This helpful guide tells you what you need to consider.

f you’re struggling to raise a deposit to get on the property ladder, it may be possible to buy a home with a 100% mortgage. This helpful guide tells you what you need to consider.

Daniel Evans
Mortgages expert
9
minute read
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Last Updated 13 JULY 2022

What is a 100% mortgage?

A 100% mortgage is when you borrow the entire value of the home you want to buy. Most mortgages require you to put down at least a 5% deposit. But a 100% mortgage means you don’t need to pay any money upfront to get a home. 

How does a 100% mortgage work?

100% mortgages are usually guarantor mortgages. This means you’ll need to find a trusted family member or friend who’s willing to take responsibility for the loan if you can’t keep up with the repayments.

As with a typical mortgage, repayments will be monthly over an agreed term (number of years). But you’ll probably be charged a higher interest rate, as you won’t have paid for even a small proportion of the property, which represents a greater risk to the lender. This can make repayments very expensive.

How have 100% mortgages changed?

100% mortgages are far less common than they used to be, because lenders are more cautious since the 2008 banking crisis. Before this, it was typical for lenders to approve mortgages with no deposit or even mortgages that allowed you to borrow more money than the property was worth.

Following events in 2008, lenders tightened up lending criteria and the mortgage market regulator, the Financial Conduct Authority, eventually introduced new affordability rules designed to ensure that borrowers could manage to make the necessary repayments.

This forced lenders to pay more attention to each customer’s whole financial situation, rather than simply relying on how much the borrower earned. So, it’s no longer that easy to find lenders willing to offer 100% mortgages.

Can I get a no deposit mortgage?

No deposit mortgages are no longer widely available, although some lenders do offer them. If you’re offered a mortgage without a deposit, it’s likely to be either a guarantor mortgage or a family deposit mortgage.

Guarantor mortgage

A parent or close family member agrees to guarantee your mortgage repayments. If you can't meet your repayments, your mortgage lender will expect your guarantor to cover the shortfall and may even repossess their home if they too can’t repay what you owe. This is known as using a property as security.

Family deposit mortgages

Your relative must deposit cash, usually between 10% and 20% of the property’s value, in a designated savings account (which will pay them interest in the normal way). They won’t be able to withdraw any of their money until the end of a stated period – say, five years. This is known as using savings as security.

If you meet the repayments and any other conditions for the stated period, the money is returned to your relative. If you default, however, this money is used to meet your repayments.

What are the advantages of a 100% mortgage?

The main advantage of a 100% mortgage is that it lets you buy a home without having to save for a deposit. This means:

  • You can get on the property ladder sooner and buy the home you want before property prices rise even higher.
  • You can buy a modest-sized property, then potentially move to a bigger home further down the line.
  • You can start to build up equity in your home, which means that once your introductory mortgage deal comes to an end, you could remortgage to a better deal.

What are the disadvantages of a 100% mortgage?

There are several pitfalls you need to be wary of:

  • 100% mortgages tend to be expensive. The best interest rates are reserved for those with high deposits, but even a 10% deposit can give you a better choice of deals and lower rates.
  • You run the risk of slipping into ‘negative equity’ – a situation where your property is worth less than the amount you’ve borrowed against it. If you’ve borrowed 100% of the property’s value, even a modest fall in house prices would leave you in this position.
  • Taking on a 100% mortgage using a guarantor means you’re taking on conditions that affect your loved ones, as well as yourself. It’s a big decision that requires serious thought by everyone concerned.
  • If your family contribute to a family deposit mortgage, they won’t be able to access their savings for a set period of time.

Think carefully before securing debt against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.

Are 100% mortgages available for first-time buyers?

You can still find a 100% mortgage if you’re a first-time buyer, but it’s likely to be a guarantor mortgage or a family deposit mortgage. Even then, a lender might turn you down if you’re seen as too much of a risk.

What are the benefits of putting down a deposit?

Even putting down a relatively small 5% deposit will give you the opportunity to choose from more mortgages; and the bigger the deposit, the better the deal you’ll be able to access. It can be difficult to save for a deposit, but doing so can certainly widen your options and reduce your financial risks.

What are the alternatives to a 100% mortgage?

Alternatives to a 100% mortgage include:

Government schemes

If you’re a first-time buyer, you could get help from the government to get on the housing ladder. Schemes include a Help to Buy equity loan*** towards the cost of buying a new-build home and Shared Ownership, where you buy a share of the property (between 25% and 75%) and pay rent to your local authority or housing developer on the rest.

***Applies to new-build homes in England and Wales only. In England, the scheme is closing to new applicants on 31 October 2022. In Wales, the scheme runs until March 2023.

Gifted deposits

Instead of acting as a guarantor, a family member could help you out by gifting you the money you need for a deposit. With some lenders, there’s a limit to how much of the deposit can be gifted.

Find out more about gifted deposits.

New-build developer loans

Property developers sometimes give you the option to borrow money from them for a deposit on a new home they’ve built. You then pay back an agreed amount over a set timeframe. It’s important to remember, though, that you’re paying this back on top of your mortgage payments, so you’ll need to be confident this is affordable for you.

Compare mortgages

When you search for mortgage deals with us, we’ll do the hard work for you. Just tell us how much the property you’d like to buy is worth and how much you want to borrow, and we’ll show you what’s on offer. Compare now and find a mortgage that suits you.

If you need more guidance on 100% mortgages, we’ve partnered with London & Country Mortgages Ltd (L&C)** to provide you with fee-free mortgage advice. Get in touch with one of their advisers here.

About London & Country Mortgages Ltd (L&C)

**London & Country Mortgages Ltd (L&C) are a multi-award winning mortgage broker with over 20 years’ experience in helping people secure their perfect mortgage. Advice is provided by L&C, who are authorised and regulated by the Financial Conduct Authority (143002).
L&C are not part of Compare the Market Limited. Compare the Market receive a % of the commission that our partner London & Country earns. All applications are subject to lending and eligibility criteria. L&C will not charge you a broker fee should you decide to proceed with a mortgage.

Frequently asked questions

How do I apply for a 100% mortgage?

You can apply for a 100% mortgage either through a mortgage broker or by contacting the lender directly. Eligibility criteria can vary among lenders, so it’s important to check their terms and conditions before you apply.

You’ll almost certainly need someone who’s willing to act as a guarantor or have a family member who’ll let you use their savings as a deposit. Plus, you’ll need to go through the same affordability and credit checks as you would with any type of new mortgage.

Can I get a no deposit mortgage with bad credit?

It’s possible to get a 100% mortgage with poor credit, but you’re more likely to be approved if you have a good credit score, low levels of debt and a regular income. Lenders will need to see evidence that you’ll be able to afford your monthly repayments when deciding whether to approve your application. It’s always worth trying to improve your credit score before applying for a mortgage as this can help to boost your chances of being accepted.

Can I get a 100% mortgage without a guarantor?

At the moment, the only way to get a 100% mortgage in the UK is with the help of a guarantor or a family member who’s happy to give you a temporary deposit. If you don’t have this support, then waiting a little longer while you save up for a deposit might be your best option.

Read our top tips on how to save a mortgage deposit.

What should I do if I can’t get a 100% mortgage?

If you’re unable to get a 100% mortgage, you could try to save for a deposit to get a 95% mortgage on a small property. Or if a family member isn’t able to act as a guarantor but still wants to help you out, you could use their savings on a temporary basis or they could permanently gift you the deposit.

If your applications are being rejected because of a poor credit score, you’ll need to look into how you can improve it.

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