No Deposit Mortgage (Offset)
09/11/2017
90
6 min read
You can buy a home with no deposit using a no deposit mortgage of a type where the deposit is offset by a helper, which could be a family member or close friend, for example, placing a sum equivalent to your deposit into a linked account.
That sum must remain in the account (invariably one set up for the purpose by the lender), untouched but interest-bearing, for a period, normally a minimum of 3 years.
It is effectively a 100% mortgage from your perspective as a borrower. A lender offering this kind of mortgage product will only make you a mortgage offer if you can prove that you a 'good risk' regarding being able to make the appropriate monthly mortgage repayments.
NB You normally have the option to fund some of the deposit yourself and this would not only reduce the sum your helper has to provide but also means repayments and rates for your mortgage will be less, saving you money in the long run.
Read on to find out about this type of mortgage and to see if it suits your needs.
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What are the main selling points of a no deposit offset mortgage?
- As a buyer, you can buy a home without having saved - perhaps for many years - for a home deposit - this makes it particularly attractive to young people in general, who won't have had years to save for a deposit on a home and may either be in their first or second job or have just graduated with the debts that normally accompany having spent years as a student.
- As a helper, you might get a respectable rate of interest (see below) for locking your savings up for a minimum of 3 years when compared to other fixed-rate savings accounts.
Who is a no deposit offset mortgage suitable for?
Any first time buyer or home mover who can make the monthly mortgage repayments on a mortgage and, even though they cannot present a 10% deposit, has a helper who can deposit the same amount of money for the minimum 3 year period.
Your helper could be any of these:
- Mum and Dad
- Other family member
- Friend
- Investor
- Share a Mortgage Investor
How does a no deposit offset mortgage work?
Instead of you providing the 10% deposit, a helper - which might be a family member or friend opens up a linked account with the lender, and they place a sum in the account equivalent to what you would have paid for your deposit. They then cannot access the funds for a set time period, normally 3 years. When this period passes, they can draw out the money along with the interest that the sum attracted over the period (as of November 2016, we have seen products which offer 1.5% over the Bank of England base rate, i.e. 1.75% at this time).
Examples of these types of mortgages on the market include Barclay's Family Springboard Mortgage and the Bath Building Society's Parental Assistance Mortgage.
Frequently Asked Questions
"What happens if you can't make your mortgage repayments?"
Circumstances might mean that you miss making a month's due repayment but if you fail to make a stated number of these, perhaps 3 or more, then the lender can retain the funds in the linked account until your mortgage account is up to date.
In order for the funds to be released to your helper, you are often also required to ensure that you don't miss any payments in the 12 months preceding and possibly no more than 2 in the previous 36 months. If you don't, the lender will continue to hold onto the helper's funds for a longer period.
If the worst comes to the worst and your property is repossessed, the lender uses the funds in the linked account to clear any losses on the sale of the property.
"Do you still have to pay for the lender's mortgage valuation survey?"
Yes.
"Can you take out more than one no deposit offset mortgage?"
Not normally. They are specifically aimed at getting first time buyers onto or existing home owners moving up the property ladder.
"What's the salary multiplier - how much mortgage might you get?"
The salary multiplier will depend on your household income; the more this is, the more likely that you will be offered a higher multiplier. For example, if your income is less than £50,000, you might be offered a mortgage of up to 4x household salary, but if it's more than that, your multiplier might be as high as 5.5x household income - this varies from lender to lender and the exact product involved.
"What sort of mortgage do you get?"
Generally you are put on a fixed rate mortgage for the first three years and are then put on the lender's variable rate. You can, of course, set up a new fixed rate mortgage after the three year period, assuming you have made all the required repayments prior to that.
"What is the early repayment charge?"
This will vary from lender to lender but you might expect it to be around 3% of the balance repaid until the end of the fixed period.
"How long is the mortgage term?"
Normally anything up to the standard 25 years but different lenders might offer different terms.
"Can you borrow more on top of a no deposit offset mortgage?"
Not normally during the period in which your helper has their money tied up in the linked account, i.e. possibly 3 years minimum or more, but check with the individual lender.
"Can you use a no deposit offset mortgage in conjunction with the Government's Help to Buy scheme?"
Check with the lender concerned.
"Can your helper set up more than one linked account to run at the same time, to help more than one person?"
If the helper has sufficient funds, this should be possible, but different lenders may take different views.
"Is your helper a guarantor for your mortgage?"
No. They are only helping you out with regard to your deposit and so are not responsible for you keeping up your repayments.
"Does your helper have any rights over your property?"
No.
"Can your helper draw their money out in an emergency?"
Not normally, no.
"Can a helper combine a linked account alongside an existing offset mortgage account?"
Yes, although if they do, they won't receive interest on the money associated with your deposit - it will be used to reduce the interest accruing on their offset mortgage.
"How do repayment interest rates for no deposit offset mortgages compare to other mortgages?"
No deposit offset mortgages are niche products: you may find that required repayments are more expensive than for many other mortgage types, but these products do enable you to buy a home without having to provide a deposit.
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