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Jargon Buster

E-mail: Mortgage Arrangers

No deposit mortgages have been withdrawn from the market and are not expected back for some time.

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One of the most asked questions over the years has been "where can I get a no deposit mortgage?"

Up until the early 1990's the only option available was a 100% mortgage and you had to jump through hoops to get it. Lenders like National Provincial, Bank of Scotland and the Royal Bank of Scotland ruled the roost and could pick and choose who they wanted to deal with.

Then in one of those magic, and probably in hind sight, obvious observations someone concluded that there was a large number of mortgage borrowers that were getting their mortgage deposit by borrowing it from another bank at the same time as submitting their mortgage application.

It was a beautiful ruse that had been going on behind the mortgage lenders backs for years.

People who could not qualify for the 100% mortgage (mainly because of restricted income multiples, and credit score) could qualify for a 95% mortgage, but that left them with a deposit to find.

After a bit of investigation one lender decided to make it easier for those borrowers with no deposit to put down, and invented a mortgage product that not only gave them their deposit, but a bit extra as well, to pay for solicitors, furniture etc.

Overnight the " NO DEPOSIT MORTGAGE " was born, and the market place has never been the same since.

No Deposit Mortgage Basics:

1. For a no deposit mortgage you needed to be in gainful employment or self employed with 3 years accounts.

2. One of the main criteria for a no deposit mortgage was a clean credit search through such agencies as Experian and Equifax

3. Your residential history needed to be traceable for at least 3 years for a no deposit mortgage.

4. Up to 95% of the value of the property was a secured mortgage. The remainder was an unsecured loan of up to £30,000 which was at the same interest rate as the secured mortgage.

5. In effect it means the no deposit mortgage was more than 100% (in fact it went as high as 125% of the value of the property that was being mortgaged)

6. The interest rates were not as competitive as mortgage where the borrower had a deposit

7. If the mortgage was paid off in part (say, for example, by selling the property earlier than expected) and the whole of the outstanding balance owed was not cleared, then the balance was converted in to a normal bank loan, and subsequently a higher interest rate was applied. This was made quite clear in the lenders mortgage contract.

8. The extra money that could be borrowed on a "no deposit mortgage" could be used for any legal purpose, and could be above and beyond that needed to fund the deposit

 

E-mail: Mortgage Arrangers