As a Mortgage Broker in Essex, the question of “How much deposit do I need?” is commonly asked, especially by First Time Buyers. The answer to this question changes depending on your personal and financial situation and your credit history, so there is no real straight answer. Typically, the minimum deposit for a mortgage is 5%, however, this could change depending on your financial circumstances and credit history. Here we explore how much you might need given your own personal situation.
Prior to the credit crunch, 100% mortgages were available all around, in fact, at the time Northern Rock were offering 125% loan to value mortgages. Nowadays, you wouldn’t see these flying about. You can see how the credit crunch came about after lenders were giving away mortgages left right and centre!
This is why you started needing a deposit for a mortgage, lenders needed to be certain that you could afford one before accepting your application. It’s not just the fact that you have met the 5% minimum deposit, it shows that you have saved and managed your finances to get the correct amount, lenders really like seeing this.
If you’re trying to get a mortgage without 5% of the property’s value, you will most likely be turned away. Other buyers may already have the minimum 5%, or sometimes more than that, at the ready and are then more likely to be accepted. You could argue that if you are not reaching that 5% mark, then you’re not quite ready to get onto the property ladder.
The government won’t help you out unless you have a 5% deposit and qualify for one of their Help to Buy schemes (find out more at https://www.ownyourhome.gov.uk/). The most popular scheme is the Help to Buy Equity loan scheme, it has been helping First Time Buyers and Home Movers secure newly built properties since it was introduced in 2013. The government will loan you up to 20% for your deposit to make up a total of 25% (e.g. 7% deposit = 18% loan).
You will have to pay back this loan, it is not a gift. If you don’t meet the deadline of 5 years, you will start receiving interest on the remaining sum that you owe. It originally starts at 1.75%, and then increases yearly after that.
Again, this is all down to your financial circumstances and your credit history. Generally speaking, yes, a 5% deposit is accepted by most lenders. Although, If you have had credit problems in the past, some lenders may want a higher percentage which could be anywhere from 10-15%.
If you are in a situation where you have a negative credit history and are struggling to get accepted for a mortgage, you may need to look into how to improve your credit score. This can be done in numerous ways; some are easier than others.
Lenders have to be careful before accepting applicants for a mortgage, especially if they have a bad credit history. They want to reduce all risks in case a repossession occurs.
If you want help from a Specialist Mortgage Advisor in Essex, we are always available, plus we offer a free mortgage consultation to all customers! Feel free to get in touch when the time suits you.
Buy to Let mortgages require a larger deposit. For example, most lenders operate at the 25% mark.
This is possible but as a Mortgage Advisor in Essex, we do not recommend it. Most lenders will reject your application straight away when they see that you haven’t actually saved for the 5%, it’s just a loan. You are essentially borrowing 100% of your whole mortgage which will also double your monthly outgoings. Lenders will rarely accept applicants trying to do this, they would prefer borrowers to save up.
This is the most common situation amongst First Time Buyers. If you are lucky enough, your parents may gift you the 5% deposit or a portion of it. In some cases, it raises the applicant’s deposit to greater than 5%, which actually increases the chances of you getting accepted.
Family members or friends that gift the money to the applicant, must sign a form to confirm that this is a gift and not a loan. They must also evidence where the money has come from before it can be used on the deposit.
Yes, you can, there are two main scenarios where this can take place:
If you need any further information regarding mortgage deposits and qualifying for different government schemes, get in touch with Essexmoneyman for a free mortgage consultation. We have Specialist Mortgage Advisors available 7 days a week.