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When you decide to buy a house, the most important part of the mortgage process is- saving for a Deposit. You must put at least 5% of the house’s value as a deposit to get a mortgage. You can borrow the rest money for 25 years of a mortgage. If you provide a higher deposit, you will ultimately borrow less, and the overall mortgage costs will be less.

For example, if a property price is – £2,50,000 and you provide £50000 as a deposit, the overall loan price is reduced to £2,00,000. It automatically reduces the liabilities towards the loan and the interest costs.

Though a deposit can help you get a mortgage at better rates, some individuals struggle to save for it.

Why Individuals Cannot Save for a Mortgage Deposit? 

Here are some common reasons consumers struggle to save for a deposit to buy a property:

• High costs of living and lifestyle expenses.
• Improving bad credit status by paying bills/pending loan payments.
• Have not planned to save that big amount of money.
• struggle to budget for your dreams.
• Student loan payments.
• Overusing credit cards.
• Spending too much on entertainment.

If you can relate, the blog states the best ways to get a mortgage for no deposit and bad credit.

What does a No-Deposit Mortgage Imply? 

It is a rare arrangement to find in the UK. It is also called a 100% mortgage. In the word sense, it means mortgage approval without any upfront money. It is ideal for first-time property buyers with little or no deposit. The lack of deposit on the property makes the monthly payments higher and the loan overall costly.

It is only possible if the country is in the best economic state and has the propensity to manage the risk well.  

Currently, every mortgage lender demands security with 5% of the property value as a deposit. It is ideal for individuals seeking to buy a property with bad credit but good income and finances.

If you lack cash, the mortgage provider may demand a guarantee with a guarantor. It is the reason a no-deposit mortgage is also known as a guarantor mortgage. Deposits reveal the person is serious about maintaining the loan term and getting the property. In the absence of the same, he desires someone to guarantee the payments on the borrower’s behalf.

How to Purchase a Property without a Deposit and Bad Credit? 

Every mortgage provider considers a few potential points in th credit report before providing the mortgage. Individuals with bad credit history and no deposit may not qualify without additional support.

To buy a house with no deposit and a bad credit profile in UK, you can consider the below strategies:

• Provide Equity in the Property to the Mortgage Provider 

If you wish to buy a property in a prime location encompassing all the facilities and the property’s value is bound to grow, consider the option.

Providing a part of the home as equity can help you qualify for the mortgage without a deposit and bad credit. It entails some risk.

It may lead to negative equity if the property price is lower than the mortgage amount. Property prices highly depend on the economy and the demand. You may risk your property on a 100% mortgage. You may further find it hard to remortgage or sell the home.

One thing that could save the situation is overpayments. You may save your home if you can clear more than half the mortgage.

• Get a Guarantor on the Property 

A guarantor is someone from the family that agrees to help the borrower qualify for the mortgage in the following way: 

• Providing Property as a Security

A friend or a family can provide a percentage stake to the mortgage provider in their property. The amount should be around 20-25%. It is something that the guarantor should proceed further with the utmost conscience.

If the borrower fails to pay the lender, the mortgage provider may repossess the property in his name. The lender will analyse the property value. He may reject the application if it is lower than the borrower needs.

• Providing Savings as a Security

The family member put some money with the mortgage provider for 3 years as a savings account. He cannot use the amount and doesn’t earn interest until that timeframe. The lender may ask for at least 20% of the property value as savings from the guarantor.

If the mortgage lender repossesses the property in case of loan default, the person acting as a guarantor must pay the outstanding amount. Mortgages with a high deposit come with a risk.

You can avoid the situation by paying a significant portion, remortgaging to a lower-interest mortgage, and saving costs. However, it is only possible if your income grows continuously and you can manage the loan payments after remortgaging.

• Shared Ownership Mortgages 

 Shared ownership is a scheme by housing associations, preferably for first-time buyers seeking to climb the property ladder. Here, you can borrow money by staking a 25-75% stake in your existing property and paying the rent on the rest amount. Individuals with stable and poor credit history can check this alternative to buy a home without a deposit.

A shared ownership mortgage on bad credit is ideal for individuals who lack a deposit and low credit history but plan to buy the property later. The borrower can increase the stake in the mortgaged property if the income increases and buy a larger portion (like from 25 to 45% stake in the new property). It eventually decreases the deposit requirement. Moreover, you may benefit if the property price increases.

Similarly, you can buy the property with a 100% stake and relish the ownership if:

• Your income increases
• You save a lump sum on the property

You can also claim your share in the property by contacting the housing association. Here, you will receive the money from the money you contributed.

For example, if the home/ property sells for £3,25,000 and you have a 25% shareholding, you will get £81,250. 

However, before applying for a shared ownership mortgage, consider the stamp duty, tax, service charge, lease, and other charges. It could impact your overall mortgage on a low income.

Bottom line

You can consider these ways to get a mortgage for no deposit and bad credit. However, be mindful that finding a 100% mortgage is rare in the UK. Moreover, having an upfront deposit lowers the risk of losing the property if you miss a few payments. Thus, try to save for the deposit first and work on your credit score to secure a safe and affordable mortgage quote to climb up the property ladder. You can also consult the best broker for your situation and get personalised assistance.