No deposit mortgages are coming back, as a way to entice first-time buyers into the home buying market.

However, before you decide to choose a no deposit mortgage, make sure you’re fully aware of the implications for your financial future.

Typically, buyers need a cash deposit saved up before they can apply for a mortgage. The larger the deposit, the more flexibility buyers have. They might opt for a larger mortgage over a typical loan term of 25 years to buy a property in an expensive area or to ‘grow into’ as a family, or choose a smaller mortgage to pay off debt faster.

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No deposit mortgages are exactly as they sound: there is no need for a deposit at all. The mortgage lender will offer 100% of the home’s sale price as a loan. Sounds amazing, right? Before you jump in, there are some caveats to consider.

No deposit mortgages are for first-time buyers, and will often come with caveats such as the property must be a new build, cannot be a flat or leasehold, and must be below a certain value.

Age is also a factor, with many lenders not giving mortgages to those below the age of 21. You also need a good credit history, with proof of the bills you’ve managed to pay over at least the last 12 or 18 months on your income. Your mortgage repayments also often cannot be more than your current monthly rent – so if you’re in a lower rent houseshare, you could be ineligible.

When you have a large cash deposit, you can opt for a bigger mortgage. This gives you more flexibility on what and where you buy your home. A no deposit mortgage, on the other hand, needs to mitigate risk somehow – and that means giving a lower maximum loan amount.

If you’re a first-time buyer, cheaper housing is what you are most likely looking at. However, you will still only be able to borrow a maximum against your income, usually 4 to 5 times your annual salary, and in many areas that isn’t enough to get even a starter home.

Another way that no deposit mortgages mitigate risk is to have higher monthly repayments. These can also fluctuate depending on interest rates in the market, and that can mean things get financially very tight for you if rates significantly rise.

A fixed term is the amount of time a particular mortgage rate is guaranteed. Once the fixed term is up, homeowners can renegotiate their mortgage rate or switch to a new supplier to get another fixed term rate and avoid big market fluctuations on their monthly repayments.

Deposit mortgages usually have a short fixed term option of one, two, three or five years. No deposit mortgages will offer a longer fixed term, such as ten or 15 years. While this might seem like a great way to lock in a low interest rate, it also means if rates drop over that decade, you can’t take advantage of them and could end up paying more for your mortgage in the long-term.

With the longer fixed term comes a further penalty: if you decide to switch providers, the early repayment fee is made in full and can be very high. If you don’t switch provider, there is often no fee for early repayment, but it depends on your individual mortgage and circumstances.

This means you’re tied into a fixed term that could put you at a long-term financial disadvantage, or be required to pay a high fee to switch (which could negate any savings made by switching).

Those of us old enough to remember the 2008 crash will know that it came from over-lending (among other factors). No deposit mortgages were part of it, as were 120% mortgages designed to cover extra costs of buying a home.

Negative equity is one of the biggest risks with a no deposit mortgage. If the market faces a downturn, the value of your mortgage loan is more than your home is worth. So, even if you sell the property, you will still owe thousands of pounds to your supplier on top of the proceeds of the sale.

Finally, no deposit mortgages don’t factor in the additional costs of buying a first home. You may need to pay Stamp Duty Land Tax, for example, as well as conveyancing and surveyor fees. Then, when you’ve moved in, you need money to furnish and set up your new home.

Many first time buyers set up Lifetime ISAs when they begin to plan to save for buying a home, but remember that these funds can’t be used for anything other than a deposit on your first home. So, the extra costs will need to be paid from another savings pot.

You will need to save a large amount of money to move home even with a no deposit mortgage. It could serve you better in the long run to use at least some of that cash to find a deposit-based mortgage and get more favourable mortgage terms.

It’s not all doom and gloom when it comes to this type of mortgage. If you are financially secure and savvy, and prepared to stay with the mortgage lender for a long period of time, it could serve you as a good way to get on the housing ladder.

Make sure you invest in a property that has longevity on the housing market, too. For example, a flat might be cheaper but it can come with extra management and lease costs that put off future buyers.

Semi-detached houses hold their value better in fluctuating markets, especially as they cover both first-time buyer, buy-to-let, and growing family buyer demographics. This could help avoid negative equity situations in the future, compared to buying a very large property, a significantly rural home, or an older building that will need renovations.

There are a few options for no deposit mortgages on the market at the moment. April mortgage provider offers a straightforward no deposit mortgage, for those with a minimum £24,000 annual income.

With the option of unlimited overpayments and dropping rates as you pay off more of the loan, it can be quite an attractive option for first-time buyers. However, the fixed term rates are ten or 15 years, and you could face negative equity if the market takes a downturn.

Halifax Family Boost offers a no deposit mortgage that relies on a family member’s savings. They agree to lock their savings into an account for three years to guarantee your repayments. If you don’t make a repayment, it is taken from the savings.

However, they will earn interest on the savings and get them back at the end of the term, as long as repayments are up to date. The first-time buyer is the only person named on the mortgage, so the family member is not at risk of being responsible for the mortgage other than the agreed amount set aside in the locked savings account.

Yorkshire Building Society’s Accord Mortgages offers a 99% mortgage, meaning first-time buyers need a cash deposit of just 1%. This can help offset risks such as negative equity (by a small amount) but there are limitations such as only being available for houses and not flats.

Always seek independent financial advice before you make a big decision like taking on a mortgage of any kind.

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