How much deposit do you need for a mortgage?
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How much deposit do you need for a mortgage? (Part 1)
Orrelle Fletchman talks to us about mortgage deposits. Episode one of two, recorded in October 2024.
Podcast approved by The Openwork Partnership on 07/11/2024.
How much deposit do I need for a mortgage? What’s the average First Time Buyer deposit?
The deposit required for a mortgage typically depends on a few factors, such as the price of the property, the type of mortgage you’re going for and the length of the requirement.
Typically, a deposit is anywhere from 5% to 20% of the property price. For First Time Buyers, it varies based on the situation and circumstances.
On average, a deposit of 14% up to 23% is typical for First Time Buyers, but each situation is different. That’s based on Halifax information from 2024.
What does a bigger house deposit mean for my Loan to Value or LTV, and what does LTV mean?
The bigger the deposit, the more of the home you will own and often, the better mortgage deal you will get.
The Loan to Value is the amount you’re going to borrow against the property. If the property is worth £100,000 and you put £50,000 down as a deposit, you’ve already got half of the house – 50% – locked in, if that makes sense.
The bigger the deposit, the more you’re going to own, and the better the deals are going to be from the lenders.
How much should I save? How can I save for a deposit?
I’d always say save as much as you can, but people often forget to pay off any outstanding finance along the way.
Having £20,000 saved but £10,000 worth of credit card debt can be a challenge. Lenders will ask why you haven’t paid off the debt – and they will factor it into your monthly affordability as well as your mortgage payments.
It starts to affect how much they’re going to effectively lend you. I’d always recommend paying off as much of your credit cards and loans as possible – as well as saving alongside that. The lower the credit you’re using, the more you can show on your affordability.
When it comes to saving, choose a figure – a number you’re going to work towards. Then go backwards and break it down into a monthly or weekly amount. I tend to use smart objectives with goal setting. Cut back on things that you don’t necessarily need, and that’ll help you save for that mortgage deposit.
Can I get a mortgage with a zero percent deposit? What’s the minimum deposit for a house?
Yes, you can get 100% mortgages with some lenders. The majority would want to see a minimum of a 5% deposit for a mortgage.
Can you buy a house with a 5% deposit? How much can I borrow with a 5% mortgage deposit?
Yes, you can do it with 5%. With a 95% Loan to Value, most lenders will probably be looking at a mortgage of around £150,000 to £200,000.
But again, it varies based on how much you earn and your credit score. A lot of different factors come into whether lenders will give you that 95%.
Can you get a mortgage with a 10% deposit?
Yes, and a 10% deposit will open up more lenders than a 5% deposit. It will give you more offers, as well.
Will I need another deposit when moving house?
Possibly. it will depend on the value of your property at the time and the cost of the property you’re going to move into. Again, there are different factors to take into account.
Having a deposit there does help, but it’s not the be-all and end-all. You can use the equity in your property to help with the mortgage.
Who do I pay my mortgage deposit to?
Your mortgage deposit is initially paid to the conveyancer who then gives it to the seller.
Can my parents contribute towards my deposit? Should I borrow money from my family for a bigger deposit?
Yes, parents can give you a deposit. If you can borrow from your family, do so, because the larger the deposit, the better rates you are going to open up from the lenders.
This is because more deals are available with a lower Loan to Value. Again, if you’ve got £50,000 to put down on a 100,000 pound property, a lot more lenders will want that business. You’re going to have a lot more deals open to you.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
Approved by The Openwork Partnership on 07/11/2024.
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How much deposit do you need for a mortgage? (Part 2)
Continuing the conversation on a mortgage deposits with Orrelle Fletchman. Episode two of two, recorded in October 2024.
Podcast approved by The Openwork Partnership on 07/11/2024.
Can I use a loan for my mortgage deposit?
No, you can’t use credit to then get credit.
Can I use my Help to Buy ISA for my deposit?
Those that currently have a Help to Buy ISA can continue to pay into that up until November 2029.
If you don’t have one and want to get one, they are now closed, but other schemes will be opening up to help people get onto the mortgage ladder. Depending on the type of ISA you have, different rules apply. The government backed one helps you top up your savings by up to £3,000 when you’re buying your first property.
Will a bad credit score mean I need a larger deposit?
Not necessarily. It will depend on how bad the credit score is. A really poor credit score will mean looking at companies that specialise in adverse credit.
Sometimes they will shift the Loan to Value they accept, meaning your required deposit moves from perhaps 5% up to 10%. Again, it will depend on the credit score itself and how low that is.
Can you get a mortgage without a deposit?
Yes, there are lenders that allow 100% mortgages, which will depend on your situation and circumstances. These are usually for First Time Buyers who are trying to get onto the property ladder. But there are definitely lenders that will allow 100% mortgages.
What size of deposit is needed for Buy to Let mortgages?
For a Buy to Let mortgage, typically you need somewhere from 20% to 40% deposit for the property. 25% is the most common as of now, in October 2024.
What is shared ownership and what deposit do I need for it?
For shared ownership, you will need anywhere from 5% to 10% of your share’s value. With shared ownership, you own a portion of the property and the developer owns the rest.
For example, if the house is priced at £100,000 and you buy half of it, or 50%, your mortgage would be £50,000. You would need a 5% to 10% deposit based on that £50,000. The developer would own the other 50% and you would pay them rent on that side.
What is Deposit Unlock and what deposit do I need for it?
Deposit Unlock is a scheme which aims to help people buy new build homes. You would need around a 5% deposit for that.
How can a broker help with deposits and mortgage advice?
Good brokers are there to give you the advice you need and do all the admin for you. You don’t have to worry about getting anything wrong.
It also gives you that protection of the Financial Services Compensation Scheme (FSCS), which means if anything does happen, you may be entitled to compensation – just to give you an extra layer of protection. A broker is there to give you as much information as possible and hold your hand through the whole situation.
You’re never ever feeling lost. You’ve got someone to speak to who can break down a lot of the jargon and talk through the scenarios for you.
MOST BUY TO LET MORTGAGES ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.
Approved by The Openwork Partnership on 07/11/2024.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
