The circumstances you find yourself in will dictate the amount of deposit you will need for a property that you set your sights on. In this article we will take a look at how much deposit may be required, based on your personal situation.
Previously, it would be quite a common sight to find 100% mortgages. Before their eventual fall, even Northern Rock were offering their customers 125% loan to value mortgages. What that means, is if you were buying a property valued at £100,000 they would still lend you up to a whopping £125,000, and yet people wonder what went wrong…
The reason that these mortgage lenders will need you to put down a deposit, is to reduce their lending risk. If they lend a customer exactly 100% of the purchase price and that customer unfortunately falls into arrears, they would then have to repossess the property.
From there, lets say property prices dipped; now they’re trying to sell a house that’s worth even less, in order to make their money back. Naturally, with lower house prices, that’s not going to happen and they will be at a financial loss. Because of this reason, the higher percentage you’ll find is a 95% mortgage, requiring only a 5% deposit from you.
It’s also believed throughout the mortgage world, that if you haven’t invested some of your own or your family’s money into your home, then you are likely to be less attached and more willing to give up if making payments becomes challenging.
As well as this, many lenders feel that if you can’t save up at least a 5% deposit for a property, or even find someone to gift you this amount, then you probably aren’t quite ready to join the property ladder.
Not directly, however, if you are able to find 5% of the deposit required from your own saved income, then you may happen to qualify for the government Help to Buy Equity Loan Scheme.
This government scheme only applies to new build properties, with the idea being that you put in 5% and then the government will loan you up to 20%, making up a total of a 25% deposit. After 5 years, you need to look at paying back the equity loan back, sometimes through a remortgage or from savings you have been able to make during that time.
In most cases, you’ll find that 5% is considered enough to put down for a deposit on a property, however, not all lenders will offer 95% mortgages, which can leave you with limited options. Saving up for a larger deposit, for example, 10% deposit, will open the door to more products and most likely at a lower rate of interest.
With the majority of 95% deals, you will normally need a good credit score to qualify. There are lenders out there that may consider you for a 95% mortgage with a fairly average credit score, but you would probably incur a much higher rate of interest.
In the event of a poor credit history, the majority of the specialist lenders will require a minimum of 15% deposit if you have a poor credit history. As mentioned earlier on in this article, the reason the lender will need a deposit is simply to reduce their risk in case a repossession occurs.
It has always been a requirement to put down a larger deposit for buy-to-let mortgages and the majority of lenders at the moment are looking for at least 25%.
Technically, this could be possible, though pretty much all lenders will not allow this, as essentially this would still be 100% lending. Again, this no longer exists due to the aforementioned risk involved with such a financial process.
Yes, this happens all the time. We will often see this being called the “Bank of Mum and Dad” (both birth and adopted parents, as well as carers & legal guardians) gifting their loved ones the deposit, or other family members such as any Aunties & Uncles.
We have even seen instances where family friends are able to gift you money. These are all perfectly acceptable options, providing they are able to evidence the funds, prove who they are and confirm they are not expecting repayment of the gift in the future. We have written a detailed article all about Gifted Deposits in Leicester.
If you are buying as a sitting tenant and your landlord or family member has given you a discount from the properties value on the open market, or if you qualify for a discount to buy from your local authority (housing association or council) under the Right to Buy Scheme, then you will typically not need to put any of your own money in as deposit. This is due to the existing equity being already “built-in” to the mortgage deal.
Please bear in mind that the above information is for reference purposes only and is not to be viewed as personal financial or mortgage advice in Leicester.