The number of ‘zero deposit’ residential mortgages taken out increased 32% in 2024 to 622, up from 470 in 2023*, says chartered accountants and business advisers Lubbock Fine.
The total value of these 100% loan to value mortgages was £197 million in 2024.
‘Zero deposit’ or 100% mortgages are loans where the value borrowed matches the value of the property being purchased. These products are primarily designed for individuals who haven’t been able to save enough to pay a deposit.
Loans where the value borrowed matched or exceeded the property value were popular before the Global Financial Crisis – with Northern Rock notorious for offering 125% mortgages.
The value borrowed under these 100% LTV mortgages is typically capped at 4.5 times the applicant’s annual salary. To reduce risk, lenders require a guarantor – usually a family member – for the loan.
Andy Noton, Partner at Lubbock Fine, says demand for these products has grown steadily in recent years, driven by the cost-of-living crisis and rising house prices. He adds that the recent increase in zero deposit mortgages suggests more young and low-income buyers are relying on them to access home ownership.
Says Andy Noton: “Sluggish wage growth and high house prices have made zero deposit mortgages an attractive option for people looking to get on the property ladder.”
“Practically all these loans will be to first time buyers who aren’t able to save large cash sums for traditional mortgage products and can’t rely on the Bank of Mum and Dad for a deposit.”
Zero deposit mortgages are nevertheless risky products
Noton warns zero deposit mortgages still carry risks for buyers. They often have higher interest rates than traditional mortgages, which can make monthly repayments steep, even on lower value properties. These high rates also make it harder to build up equity in the property quickly. This is turn may make it difficult to remortgage if the Bank of England’s base rate comes down.
Additionally, there’s a higher risk of borrowers falling into negative equity, where the value of the outstanding loan exceeds the value of the property. This may lower borrowers’ credit ratings and limit their access to loans in future.
Adds Noton: “People should be aware that these mortgages are risky. The monthly repayments can be hefty – even if you can afford the payments it will still take a long time to own your house outright.”
Year end December 31
Loans covering more than 95% of a property’s value made up 6.1% of the market in 2007, but just 0.35% in 2024. Source: FCA.
