Perhaps the hardest part of getting on the property ladder is scrabbling together that first deposit, and it can be enough to put people off and carry on renting.
However, while a substantial deposit will help you secure a mortgage, if you can’t afford one then all hope isn’t lost.
Here are a couple of ways you can try to secure a mortgage with little or no deposit.
With a shared ownership scheme you will only own a portion of the property (anywhere from 25% to 75%) and the rest will be owned either by your local authority or the housing developer.
Of course, this means you’ll be needing a smaller mortgage, and thus a smaller deposit, but you will only own part of the property (although you can often purchase the full property further down the line).
You will also need to factor in the rent that you’re going to have to pay on the portion of the house that you don’t own.
While this is unlikely to be too much, it’s worth bearing in mind. You can learn more about shared ownership properties in this article we published back in January.
Deals on new builds
Sometimes property developers will offer you deals on new build properties, but unlike a shared ownership scheme, you will actually own the full property.
In this case, you will be borrowing your deposit money from the construction/development company which is great in the short term, but make sure that you won’t get caught cold when it comes to repaying the loan further down the line.
These types of offers are very dependent on the circumstances but as long as you can afford the repayments it can be a good option because as a first-time buyer you’re very attractive to the construction companies.
These mortgages allow someone such as a parent to act as a guarantor on your behalf, and they will have to make the payments if you’re unable to do so.
While this means a lender will feel more secure in granting you a mortgage (and at a smaller deposit), the obvious issue is finding someone who is willing to guarantee you for the mortgage as it could wind up being a great financial cost to them if you fail to make the payments.
This is a really handy option if you want to help your children buy a house but don’t have the cash to fund their deposit for them.
Buying a house at auction will likely require a little DIY to get it in a habitable state, but it could get you a real bargain.
Properties bought at auction are often much cheaper, but there is a reason for this. They’re usually the type of properties which can’t be sold on the open market and will require a bit of time and money to get it into a decent state, and might wind up not being worth your while.
Bear in mind that you will still need a mortgage and deposit for these properties, they’ll just be cheaper.
All in all, buying at auction is quite a risky proposition, so make sure you know what you’re getting yourself in for if you do opt to do it.
Buy with someone else
Purchasing with a partner or friend will lessen the burden on you and give you more leeway when it comes to negotiating your mortgage.
Much like with a guarantor mortgage, you’ll have to trust the person you’re moving in with to keep up with the payments.
You’ve also got to be sure that you’re still going to want to be living with this person a couple of years down the line!
You’ll also have to address how you are going to split the costs of things such as bills and maintenance.
This will make sense if moving in with a partner but can be a bit more complex if it’s a friend of family member that you’re buying with.
Low deposit mortgages
There are some lenders out there who will lend 95% LTV (loan to value) mortgages which means that the lender will let you borrow 95% of the value of your house and will only need a 5% deposit.
These mortgages often have much higher interest rates, so unless your options are very limited we would advise saving up until you can afford at least a 10% deposit.
You’ll need to have a good credit score to be able to qualify for a low deposit mortgage but they can be of a great help to those who can’t afford a large deposit.
Help to Buy
The government’s Help to Buy scheme can help you out in a number of ways, such as the equity loan where they will front you with up to 20% of the value of your property, meaning that you’ll only need a 5% deposit and a 75% mortgage.
This loan is interest-free but only for the first five years, after which you’ll have to pay a fee of 1.75%.
It might also be worth looking into a Help to Buy ISA which can give you up to a 25% bonus on your savings, meaning an extra £50 for every £200 you save.
You can find out more about the Help to Buy ISA on our blog and on the pros and cons of the Help to Buy scheme in this guide from Money.
While the above are all viable options, you might be best to put off buying for a little while until you can build up a decent deposit.
This will work in your favour in the long run and will mean you’ll have to borrow less when you do take out a mortgage.
Whatever you choose to do, we’d be happy to help here at Search Mortgage Solutions so feel free to give us a call on 0800 756 7794 or get in touch online.