Buying Property With No Deposits


Buying Property Without A Deposit

If you’re looking into the prospect of buying a property without throwing down a deposit, my assumption is that you’re already astute enough to know 1) it’s not the most sensible approach to buying a house 2) it’s a high-risk manoeuvre!

However, if that’s news to you, my concerned gut tells me you’re in over your head.

In any case, 100% mortgages are a real thing (for one reason or another), and while they’re relatively limited in availability, they can provide a life-line to those that want to hop onto the housing ladder without any savings (i.e. a deposit).

Table of contents:

You’ll need a 100% mortgage to buy a property without a deposit

Getting a 100% mortgage is the only method available of buying a property without a deposit. I certainly can’t think of any other method, assuming you don’t have the money to buy outright.

A 100% mortgage is a loan which equals the entire value of a property [you wish to buy], which means no deposit is required.` For example, if the property is on the market for £100,000, a 100% mortgage loan would also be £100,000. Normally, lenders require borrowers to pay a deposit of, say 30%, and then lend you 70% of the full cost of a house.

Needless to say, that’s all pretty self-explanatory. So let’s move along swiftly to the meat and potatoes of the topic…

Can I get a 100% mortgage?

For sure, this is the tricky part – because getting a 100% mortgage is a non-starter for most people!

I don’t want to bore you with a “once upon a time story”, but of course, I shall.

Once a upon a time – before the 2008 property crash – 100% mortgages were widely available and they were certainly selling like hot cakes. In fact, I even remember seeing awkward looking 110% mortgages on the shelves (less said about them the better). Ironically, those obscure loans were the cause of the economic meltdown; lenders’ approving ludicrous loans to individuals that couldn’t realistically afford the repayments. Apparently it seemed like a good idea at the time. *blank stare*

I say ironically, because here we are, looking into 100% mortgages in order to buy a property without a deposit.

Fortunately, lessons were learned.

While 100% mortgages are still available, there aren’t many of them around, and for those that are, the criteria to qualify for the loans are significantly tighter than they used to be back in the day.

The few lenders that do offer 100% mortgages will mostly likely require you to have a guarantor, which means you will need to find, typically a close family member, to agree to take liability for your debt if you default on your repayments.

Guarantor mortgages

Personally, and at the time of writing this blog post, I haven’t seen any 100% mortgages that aren’t “guarantor mortgages”

A guarantor mortgage is a loan where most often a parent (or whichever family member you can rope into obliging) agrees to using their home or savings as security against the loan, and to cover the any mortgage repayments missed by the borrower.

Guarantor mortgages are essentially secured loans, in the sense that the loan is secured against another asset. They’re perfectly designed for people that can only afford a small deposit, or no deposit at all.

So the two takeaways should be:

  1. You will most likely need a guarantor to qualify for a 100% mortgage. Most lenders will require the guarantor to be a family member;
  2. The guarantor will need to pass certain criteria, such as, they will need to have savings or a property, and good credit history.

Pros and cons of buying a property without a deposit

Pros

  • Obviously. You get to jump onto the property ladder without a deposit! Yay!

I know, that’s a lousy list of pros.

Honestly, that’s all I can think of. Just one.

But to be fair, it’s a GIGANTIC pro.

I’m genuinely trying to be positive here.

Cons

  • Negative equity is a huge risk, and can cause multiple problems.

    Negative equity occurs when house prices drop and the loan amount becomes greater than the value of the actual property. For example, suppose you purchase a property for £100,00 and therefore the mortgage is £100,000; if house prices drop by 5% the following day (unlikely, but very possible), your mortgage debt will still be £100,000, but the home will be worth £95,000.

    One of the biggest problems with negative equity is faced when trying to remortgage (to find a better rate after the initial introductory rate expires), because lenders are very unlikely to remortgage on a property with negative equity. So you’ll then be stuck with your current lender’s Standard Variable Rate, which are typically VERY high. The end result? Higher monthly mortgage payments.

  • Interest rates are typically higher with 100% mortgages. Generally speaking, bigger deposits provide access to not only more mortgage products, but also products with lower interest rates.
  • You will most likely require a guarantor, and that means you will also put a family member at risk (and that can often result in family feuds, especially if you miss your payments).

Scared? Reluctant? Unsure?

Good, that means you might actually appreciate the risks of 100% mortgages.

Where can I get a 100% mortgage?

Mortgage products frequently change; products are constantly being yanked off the shelves and replaced. So if I point you towards a specific 100% mortgage product today, it may vanish by tomorrow.

So that’s why I think it’s most sensible for me to point you in the direction of Habito’s free online mortgage brokerage service – they search the whole mortgage market, which includes 90+ lenders and 20,000+ mortgages. They have access to a huge catalogue of mortgages, suitable for all types of borrowers. They also provide free exert advice.

Can I get a 100% Buy-To-Let mortgage?

Since this is, first and foremost, a landlord blog, I should address this burning question.

But first, let me say that the thought alone, of purchasing a BTL property on a 100% is total insanity!

During the 2008 property crash, a huge portion of those that got wiped out were landlords with 100% BTL mortgages.

I’m 99.99999% certain 100% BTL mortgages don’t exist anymore. At least, I haven’t seen neither hide nor hair of them. You’ll need to gather together at least a 15% deposit for a BTL mortgage. It’s even possible that won’t be enough.

100% Buy-To-Let mortgages are a non-starter as far as I’m concerned, and you shouldn’t even be looking into such foolishness *slaps your hand* Shoo! Get out of here if that’s your objective!

On a sidenote, if you’re interested, here’s my complete guide on BTL mortgages. And nope, you’ll see no mention of 100% mortgages in there. That’s for sure.

Consider a 95% mortgage (the benefits of putting down a deposit, even a tiny one)!

The reality is, anyone that is seriously contemplating 100% mortgages is in dire straights, or in some form of desperation. I can appreciate that.

However, I would personally try to avoid opting for a 100% mortgage if at all possible. A small deposit is better than no deposit. Even throwing down a tiny 5% deposit will minimise your risk, and it will significantly increase the choices you have available in terms of mortgage products.

If raising a 5% deposit will require standing on the sidelines for a further 6 months, and having to tolerate unbearable parents’, I believe it’s a price worth paying. I say that knowing the risks of 100% mortgages and the trail of destruction they can leave behind if shit hits the fan.

95% deposits will open up many more doors. Of course, if you think you can grit your teeth and muster together even more, then that’s even sweeter.

Once again, if you’re looking for advice, particularly in regards to what mortgage products are available to you, I recommend using Habito’s free mortgage brokerage service.

33 Comments- Join The Conversation...

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Arif 27th February, 2009 @ 02:17

Hi,

He is pretty well known in the property investment community, suffice to say I have not heard to many positive things of his services but then again I haven't used his services myself.

Buying Below Market Value with no deposit isn't new and has been a common way to buy multiple properties without cash. Personally I don't see the need to buy when you can control a property with the existing loan (another far more efficient and true win win strategy for everyone involved).

By the way love the blog posts. Its good to see someone who says how it should is.

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Kath 27th February, 2009 @ 13:49

I've bought under a vendor cash back before. Its a bit fraught incase it is down valued but that didn't happen with me. Thetrick is to have an IFA/Estate Agent andSolicitor who have worked with them before, otherwise people are inclined to believe that its 'dodgy'...
Which I suppose it IS slightly :o)

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Kath 27th February, 2009 @ 13:54

The property sourcer bit seems a little odd? Maybe its just me.

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Dave 1st March, 2009 @ 12:46

The reason not to do this is because it's called fraud.

There is no such thing as BMV there is only MV, market value, which is the price a buyer and seller agree on the free market.

You are getting 100% of the value of a property as a loan. This is why banks need bailouts. The mortgage assets are worth less than par on the banks balance sheet, making them 'insolvent'.

Your plan to go slowly and pay down debt while it is cheap 'may' well work. Ajay Ahuja is holding down the fast-forward button to insolvency. His balance sheet is being annihilated.

Down go down with ajuha's ship.

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ajay 5th March, 2009 @ 19:44

Hi,

Just to assure you that I do read your blogs! And yes you are right that buying many properties with very little money is a high risk strategy but come with it are potential high returns.

I think of it like this:

The more you buy, the more you have in debt but the more you have to receive in rent. If you do your figures right (which I do because I used to practice as a chartered accountant) then your profit grows the more you buy. Simple.

So to your specific question about how my clients buy properties with no deposit. It works like this:

1. We find a property advertised and worth £100,000.
2. We haggle with the vendor and get the vendor to accept £75,000.
3. We structure the deal as:

Agreed selling price £100,000
Selling Fee £25,000
Net price to vendor £70,000

4. We get the property surveyed up to £100,000 which is the agreed selling price.
5. The lender offers 75% of the agreed selling price as a loan which equals £75,000.
6. This £75,000 is then used to pay the vendor £75,000 and there you have it a No Money Down Deal.

Please note in the above there has been no deposit monies involved. We simply get the lender to pay 100% of the purchase price of £75,000.

The whole system depends on the property valuing up at £100,000. if it does then everything else slips in to place.

There are a number of other steps that have to be followed to keep the right side of the law (which is our USP) but effectively we obtain the property for our clients with no money down.

We charge anywhere from £1,200 to £3,500 for deals like these. We can even acquire properties which result in a cashback even after our fee depending on how much discount we are able to get on a property.

I hope that answers all your questions but more importantly wetted your appetitie and pushed up your risk profile!

Ajay

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www.thebeebear.wordpress.com 5th March, 2009 @ 21:47

its clear that he finds the deals and doesnt have the capital so he gets others to invest....they put up the cash, and he then manages the properties to get an income. The investor has to trust in his good judgement, since if the properties are bought badly or take a long time to go up then the investor will wait a long long time to actually see any money.
Not the kind of thing i would recommend in a falling market...but a great strategy to have in a boom.

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www.thebeebear.wordpress.com 5th March, 2009 @ 21:49

Dave is absolutely right.

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Phil 9th March, 2009 @ 18:03

Surely this equates to mortgage fraud, failure to inform the lender of the actual price that was paid for a property is potentially criminal.

Any solicitor following Law Society guidelines would be required to disclose the 'side payment'

You should ascertain the true net cash price to be paid, to comply with the CML handbook and Land Registry requirements. You should consider any direct payments, allowances, incentives or discount in ascertaining this price.

You should state this amount as the consideration in all of the following documents:

contract
transfer documents
mortgage instructions
certificate on title to the lender
Land Registry forms
You should seek to understand any discrepancy between the value recorded in any of these documents, or if you are asked to enter a different value.

If you discover discrepancies in the valuation of the property between any of the relevant documents, you should consider your obligations to disclose this information to the lender.

Part one of the CML Handbook says you must report such changes to the lender. However, individual lenders may vary this obligation, either by using part two of the handbook, or through the specific instructions they provide.

Also consider your obligation to the lender to disclose any direct payments between the buyer and seller either already made, or proposed, that are not included in the mortgage instructions.

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Ryan 11th April, 2009 @ 14:26

Two Questions Ajay
1) Who is your lawyer?
2) Which lenders do you use?

I have seen this gifted deposit type scheme before and thought it was stopped. The bank are basically 100% funding the deal and most will only lend on the purchase or valuation price which ever is the lower. Are there any lender left that really believe the finders fee is not part of the purchase price?

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Newbie09 5th August, 2009 @ 15:00

Landlord,

Did you decide to go with Ahuja? And if not, any particular reason?

As someone trying to increase my property portfolio i'm tempted by Ahuja, but money for nothing.....seems to good to be true to me!

Thanks
Newbie09

Ps. really enjoy reading your blog.

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Charles S 3rd November, 2009 @ 16:25

Like so many others I was tempted by Ajay and took the bait. Now I'm up that creek without a paddle. I'm trying to warn others about him via a hubpage - hope I can add it here:
http://hubpages.com/hub/My-US-Property-Nightmare

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John Standring 22nd November, 2009 @ 13:01

Hi Charles S.

Hope you get him can you Email me, johnrichardstandring@ yahoo.co.uk, maybe we can help eachother.

Regards John Standring Or call 07973322589

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Charles S 22nd November, 2009 @ 15:07

Hello John -

Emailing you today. I've done another hubpage - with links to help others get their money back from people like Ajay...
http://hubpages.com/hub/Scammed-By-Ajay

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bernard 23rd November, 2009 @ 23:05

Read the reply from Ajay.

Ajay 100-25 = 75 not 70 as shown..

There are a few mistakes in your books also sorry mate but accountants hardly ever make 'silly' errors like this.

This was the usp that finally made us say NO to your deals.... But goodluck.

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NITINBABU VRAJLAL 3rd March, 2010 @ 16:25

Hi,

I am a victim of AJAY AHUJA.

Waiting for court decision regarding my money claim.

please be warned this: He is big fraud please don't hand him you hard earned cash as i did (stupid of me!)and i am now crying running after him and he is enjoying life with my money and of other innocent peoples, but i trust in GOD and unfortunately he is also a son of GOD!!! but he will have to pay!!!!i would like to get him face to face to say something to stop him doing these to other peoples but i am doing this to warn all peoples to be carefull.
thanks

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John Standring 3rd March, 2010 @ 17:10

Hi Nitinbabu,

How much did he take you for?

He owes me 25k ++++

Mey Email address is johnrichardstandring@yahh.co.uk

Got lots of info for you.

Regards John 07973322589

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Property in London 16th December, 2010 @ 14:54

I have studied different methods for a number of years; I have been a property investor for 23 years and became a professional one in the last decade when I started to invest in "Buy to Let" properties. When you invest professionally, you have to be creative... you have to come up with different ways to buy without having to stump up lots of cash for deposits; otherwise you will run out of money. These methods can also be used by everyone; they are ideal for those who want to buy their own home and don't have a deposit, especially 1st Time Homebuyers.

Here are a couple of my suggestions:

1. Borrow the money from a family member or parent or friend. Borrowing from parents used to be the most popular way that first time buyers got their deposit, however with pension values falling so much; many people have to hold onto their hard-earned cash. Saying that they may lend you money in the short-term. Offer them incentives... offer to pay them interest on the amount that you borrow. For example, if you borrow £15,000, pay them 5% per annum for it. That will cost you £62.50 per month; they certainly wouldn't get this return on their money from the bank. It is important that you set a time in which you will pay back this money and plan on how you will do it.

2. Purchase a house at 25 - 35% below market value and then after a short period of time you re-mortgage the property. Sometimes you will be asked you to put down a deposit based on the purchase price (which you would have to borrow), but I will show you how to get this deposit back and more in the following example:

So, you find a property that has a value of £100,000 and purchase it for 25% below its true value i.e. £75,000. Your lender will probably ask you for £11,250 as a deposit (15% of £75,000) and give you a mortgage of £63,750. You have to make sure that this mortgage has no tie in period. After a few months you re-mortgage. When you re-mortgage a property you own, the lender will lend you 85% of the VALUE i.e. 85% of £100,000 = £85,000. With this £85,000 you pay off your previous mortgage of £63,750 and the borrowed deposit of £11,250. This totals £75,000 and the lender has given you a mortgage of £85,000... you now have £10,000 cash left over!!! You can do whatever you like with this extra money!

The easiest way to find below market deals is from a person who sources properties below market value... ask your financial advisor for sourcing agents or search online.

-Property in London

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Real estate pune 14th September, 2011 @ 09:11

I think you have great sense about property and real estate.
Thanks for sharing.
Please keep updating more.
http://www.propertydukan.com

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Shyam 11th March, 2012 @ 17:14

I wish to know how can I check of the property is genuinely below the market
I have contact with many companies offering this but how true is this
Is there a legal way and are they been regulated by a legal body
Also if I have to buy far away from where o do I have to go and view the properties
People are buying everywhere how do they do this

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Rob 14th September, 2012 @ 15:37

This method of buying property is fraudulant and illegal. This was the method used by Inside Track and which bankrupted Bradford & Bingley through their Buy to Let arm Mortgage Express. All I can say is this man is using a dodgy solicitor who must be disclosing to the lender that the purchaser has placed a 25% deposit with them. If this solicitor gets caught he will go to jail. If you want to find genuine, not just anything, high yield discounted property in the North East give me a ring on 07899921654

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Ray 15th January, 2013 @ 14:15

Hey, so how i can buy a house, if my weekly payment is 300, and i cant save for deposit, cause my rent cost 500 in a month and banks wont give me loan to buy house.

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Raaz 21st January, 2013 @ 12:12

Please someone tell me how are you chasing Ajay for cash, what did you pay him cash for when he clearly says whta he does and it doesnt invovle any deposit / cash, and where is he now if he did, have done or is doing fraud.....thank you

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Imran 14th January, 2014 @ 21:11

hi to everyone on here the ahuja group is a con I invested in his company couple years back had nothing but problems,we gave them 3000 pounds finders fee and we had to pay for a survey to be done on every house they offered. The first house they offered us was really run down and over valued, the second house they offered us was again run down and under valued I got fed up and asked for my 3000 pounds back only to be told we could not have it back and that it will stay in their account until they found us another property and still till today our money is in their account and no one has offered us anything else massive CON ARTIST oh and I forgot to mention he was investigated by sky news because it's happened to a lot of other people aswell.

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Chrissyb 8th March, 2014 @ 13:36

Hi

I am showing interest in getting on the property market without the initial deposit and understand how this works however how do you stop your lender finding out and asking questions and which lenders are the best to use (the ones who ask the least questions etc)

Thanks

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Nina 20th June, 2014 @ 21:34

I bought my house from my dad who agreed to sell me it cheaper. It was valued at 950000 but he sold me it for 60000. When I was looking for a mortgage I spoke to Santander and they just said they would basically see the 35000 difference as my deposit so I didn't have to put a penny down. That was it no questions asked. By the comments on here it seems people think this is dodgy?

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ROB 23rd June, 2014 @ 21:04

It depends what price the valuer puts on the property but it is still unusual as you are not putting any actual money of your own down. Especially now when lending criteria has really tightened up. Did you buy this property recently or a few years ago when lending criteria was different. If it was recent did your father act as guarantor?

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Mr Average 5th November, 2014 @ 10:51

Hi all you property experts

I am not a property expert, and no deposit property purchases sound very sexy. However, it is apparent that this only works if you get a massively discounted property (keep seeing the magic figure of 75% of value mentioned). Well, that's fine and dandy but if you are lucky enough,clever enough, charming enough to persuade a vendor to under sell their home to you for 3/4 of its worth then why bother with all this financial jiggery-pokery, just put the ruddy thing back on the market and sell it for its true value - simples! eek.

Or have I missed something....

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Elroy 25th May, 2015 @ 22:30

Hi Nina,

I bought my first flat with a 25% deposit on a government Homebuy scheme in 2003. I was responsible for the remaining 75%. I did not need a deposit and got a favourable rate from the bank.

The deal is that when you sell the property the government gets 25% of the sale price of the property. I remortgaged 12 months later and bought the property outright.

The £35k acts as a sizeable deposit - hence the easy coolness from the bank.

Jim Haliburton, based in the Midlands, is the most successful HMO landlord in the UK and financed his sizeable portfolio using credit cards.

The 25%

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Roland 5th June, 2015 @ 15:17

A lender will lend a percentage of the market value or purchase price whichever is the less. Therefore buying like this is mortgage fraud.

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gladys 20th July, 2015 @ 19:14

l would like to buy property without deposit

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Tom 14th October, 2016 @ 11:50

Hi there let's say I'd like to buy very first house or flat shared ownership 50 %
Can I get this deal without deposit ??

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Mark 15th April, 2017 @ 15:55

The people saying that buying a house for the agreed purchase price and not the open market valuation is fraud, are completely wrong.

Whilst the majority of lenders offer loans based on the lower of the purchase price or valuation, I can think of 17 short term lenders who will offer their loans as a percentage of the OMV, regardless of what has been agreed as a selling price.

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Hayley 23rd June, 2019 @ 13:30

Hi all

reading through these comments gives me hope. I am not currently working and have worked in the hospitality field for over 25 years on and off. I want to buy a B&B how would i go about doing this without a deposit.

I can run a B&B standing on my head but i cant find away of getting someone to help me doit

any suggestions would be sooo grateful

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