UK bank launches new mortgage that could get you on the ladder with £0 deposit

When it comes to getting on the property ladder, these days, half the issue is cobbling together a deposit.

With rents as high as they are, many prospective buyers simply don’t have the disposable income to save anywhere near enough, which means the Bank of Mum and Dad is often the only option.

Increasingly though, high street banks are offering another way to help customers become homeowners: zero-deposit mortgages.

The latest addition to the selection, with a loan-to-value ratio of between 95% and 100%, is from Metro Bank.

There are limits to it. For one, the policy will only cover homes worth up to £675,000, but considering the average home in the UK currently costs £376,191, while in London the figure sits at £670,067, it should be enough for most first-time buyers.

This is also a Joint Borrower Sole Proprietor (JBSP) mortgage, meaning you need between one and four immediate family members to apply alongside you.

While the fact their income is used in the affordability assessment (typically 4.5x all applicants’ combined annual earnings) means you may be able to borrow more than you would otherwise, you’ll own the home.

However, joint borrowers be held responsible for paying if you can’t — and defaulting will impact their credit history as well as your own.

Metro Bank says lending is subject to meeting ‘enhanced eligibility requirements’, but borrowers will ‘receive specialist mortgage advice before applying’ and won’t have to pay a product or valuation fee.

Its also adds that the new mortgage — offered at a maximum term of 35 years, with five-year fixed rates of 6.99% —isn’t available for properties above commercial premises or new builds.

What other zero deposit mortgages are there?

Metro Bank isn’t the only lender to launch zero deposit mortgages. Skipton Building Society also offers similar products, and applicants are able to borrow a higher amount too (5.5x income, rather than 4.5x).

Alternatively, its Delayed Start mortgages given new homeowners a bit of breathing space for the first few months, with payments starting later, despite interest accruing from day one.

Last year, Barclays scrapped its deposit requirement for people buying their council or housing association homes under the government’s Right to Buy (RTB) scheme.

Previously, the bank required at least a 5% deposit for Right to Buy (RTB) mortgages, but subsequent changes meant eligible buyers no longer needed to put down any money up front.

Otherwise, the space is largely occupied by smaller building societies and specialist lenders. And although major banks such as Lloyds and Santander have low-deposit options, you’ll still usually need a minimum of around £5,000 to £10,000.

The downsides of a zero deposit mortgage

While it’s an attractive prospect, taking out a zero deposit mortgage isn’t without drawbacks. First off, Money Supermarket points out they often come with interest rates.

It’s also easier to fall into negative equity, where if the value of your home falls and you want to move, you end up owing more than your home is actually worth.

Marc von Grundherr, director of Benham and Reeves, tells Metro: ‘For the right borrower, 100% mortgages can be a sensible option, particularly where monthly repayments are comfortably affordable, and there’s a clear intention to remain in the property for the medium to long term.

‘That said, they do come with a greater degree of financial risk.

‘Starting with no equity means homeowners are more exposed should house prices fall, while borrowing the full purchase price generally results in higher monthly repayments and less flexibility when it comes to remortgaging during the early years of homeownership.’

However, Marc reckons the key question isn’t whether you’ll ever pay off the mortgage, but on long-term affordability and ‘ensuring the mortgage remains manageable if interest rates or personal circumstances change.’

‘While they can be an excellent stepping stone for aspiring homeowners, some buyers may ultimately benefit from waiting until they’ve built even a modest deposit,’ he adds.

‘This gives them access to a wider choice of mortgage products, more competitive borrowing costs, and a valuable equity cushion from day one.’

Do you have a story you’d like to share? Get in touch by emailing MetroLifestyleTeam@metro.co.uk

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