Zero Deposit Mortgages – Are they for you?
Hi, I’m Jordan, CEO of Jordan and Halstead and today, lets talk mortgages…
Sometimes mortgages aren’t exactly the simplest thing to understand and with the introduction of “No Deposit” or “100%” mortgages, that muddies the water even more so today lets take a look at the benefits and differences between a traditional mortgage and a no deposit one.
Skipton have recently introduced an all new product offering first time buyers a chance to buy a home with no deposit required and it’s been causing a lot of interest but also a lot of confusion and hopefully today, I can help clear up who it’s for and what it actually entails!
Firstly, it’s worth noting that to qualify for Skipton’s “No Deposit” mortgage, There are also a few requirements and things you’ll need to know:
- These mortgages are for first time buyers only
- You need a track record of paying your rent and bills (for the last 12-18 months)
- Your mortgage repayments can’t be higher than your historic rent payments with no missed payments on debt of credit commitments
- You can borrow up to a maximum of £600k or 4.5x your income
- It’s only available with a 5-year fixed rate mortgage at 5.49% interest
- You must be over 21
- You can be eligible with a partner
- New build flats are ineligible
So, with that out of the way, let’s look at how Skipton’s product and a more traditional mortgage compare…
- The obvious difference between the 2 being that you won’t need to save up a hefty deposit if you’re using a 100% Mortgage but that also means that you’ll need to have up to 18 months of perfect credit and rent payments while with a traditional mortgage, you’re going to need to have saved a considerable amount of money to pay your deposit which can be hard to do if you’re renting and finding it hard to save.
- One important difference to note is that while short term, you might be able to secure a mortgage, in the long term, you may well end up paying more.
The average UK mortgage rate sits at 4.78% while Skiptons’ is 5.49%.
That doesn’t sound like a lot but on a 220k mortgage, paid over 25 years, you could end up paying up to £27,487 more over the course of your mortgage, paying back a total of £404,904 compared to £377,417 on a deposited mortgage.
- The last key difference for me is a simple one, choice.
There are so many options available should you be able to pay a deposit while you have very limited options should you take the no deposit route.
It will make it harder for you to shop around to find the best deals BUT at the same time, does give you a solid option to get on the property ladder should you struggle to be able to save for a deposit.
As a product, I’m all for zero deposit mortgages as a way to allow more people onto the property ladder, it’s a great opportunity for long term renters to finally secure a home of their very own but if you’re in a position to pay a deposit though saving or the bank of mum and dad, in the long term you’ll save yourself a substantial amount of money.
These are definitely two very separate products for two very different audiences and I’d do my research and preparation before deciding on either.
As always, I’d suggest speaking to a financial advisor before committing to either option but I hope this brief guide will give you a better idea of the options available to you!
If you’d like a more in depth look at my thoughts and opinions on these mortgage products, please watch the Youtube video below where I go into much more detail.
Thanks for reading!