If you’re struggling to save up a deposit to buy your first home, you may be able to get on the property ladder with a 100% LTV mortgage - also known as a no deposit mortgage. The main advantage of a 100% mortgage is that you can buy a property without a deposit, so there's no need to spend years saving up for a mortgage deposit or spending money on rent.
A no deposit mortgage is sometimes known as a 100% loan to value (LTV) mortgage because it requires no deposit at all and involves lending the entire value of the property being purchased.
OTHER NAMES OF NO DEPOSIT MORTGAGES
This type of mortgage can be known by several names:
- No Downpayment Mortgages
- 100% LTV Mortgages
- Zero Deposit Mortgages
HOW DO MORTGAGE DEPOSITS WORK
House deposits are worked out as a percentage of the property's value that you pay for with money you have saved up. You must then borrow the rest as a home loan or mortgage to cover the rest of the purchase price.
In most cases, the smallest deposit you can put down is 5% - so if you bought a house for GHs200,000, you’d need to save up GHs10,000. The mortgage would then have a loan to value ratio of 95% because it would cover 95% of the purchase cost.
The more you can save for a deposit, however, the more likely you are to get accepted for a mortgage and the lower the interest rate will be. So, for the same house of GHs200,000, you would need to have saved up GHs20,000 to put down a 10% deposit, GHs30,000 for a 15% deposit, GHs40,000 for a 20% deposit - and so on.
The most competitive interest rates are usually for those who have at least a 40% deposit to put down (60% LTV) - so GHs80,000 for a house worth GHs200,000.
WHO NEEDS A 0% DEPOSIT MORTGAGE
This type of mortgage is usually aimed at those who are finding it hard to save up enough of a house deposit to buy a home.
DRAWBACKS
There are several disadvantages to no deposit mortgages. 100% mortgages have much higher interest rates compared to mortgages that require a deposit. Application fees can be higher too, and you’ll usually need to pay a higher lending charge - this is a fee for borrowing with a small (or no) deposit.
Another problem is what happens if your house falls in value (rarely happens in Ghana). You can be left in a situation known as negative equity - meaning the value of the loan you have secured on your home is larger than the value of the home.
ARE NO DEPOSIT MORTGAGES CHEAPER?
No deposit mortgages also have the same fees, interest charges and other costs that come with any other mortgage.
A zero deposit mortgage is also much harder to get accepted for and if you do get accepted, there’s a risk of falling into negative equity - where the value of your property is less than the amount owed on the mortgage.
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