It is your circumstances that will dictate the amount of deposit you will need for a property and the process of what you are trying to do. Here we explore how much deposit may be required, given your personal situation.
In the past, it was commonplace to find 100% mortgages. Before they went under, even Northern Rock was offering 125% loan to value mortgages. What that means, is if you were buying a property valued at £100,000 they would lend you up to £125,000. Yet they wondered why it all went wrong…
The reason that lenders need you to put down a deposit, is to reduce their lending risk. If they lend you 100% of the purchase price and you happened to fall into arrears, they would then have to take possession of the property. All it takes then is a small dip in house prices for them to be at a loss, which they naturally don’t like.
It’s also believed that if you haven’t invested some of your own or your family’s money into your home, then you might find it a bit too easy to call it quits if things get tough and you can’t afford your repayments. It could also be argued that if you can’t save up for or with help, make up at least a 5% deposit for a property, then you probably aren’t quite ready to take that step onto the property ladder.
Directly, no they can’t. That being said, if you can find 5% of the deposit from your own funds, then you could qualify for the government’s Help to Buy Equity Loan Scheme. Applying only to new build properties, the idea is that you put in 5% and the Government loans you up to 20%, making up a 25% deposit. After 5 years you need to look at paying the equity loan back possibly by way of a remortgage or from savings you have been able to make over that time period.
Generally speaking, yes, 5% is enough for most mortgage types. It does vary between lender though and some will accept only a 5% deposit, limiting your options. To combat this, you will normally need a reasonable credit score to qualify. There are lenders out there that may consider you for a 95% mortgage with an average credit score, but the rate of interest would also be higher.
The majority of the specialist lenders will require at least 15% deposit if you have a poor credit history. As touched upon earlier in this article, this is simply to reduce their risk in case a repossession occurs. It is a lot harder to obtain this type of mortgage than it was in the mid-2000s but, not entirely impossible.
It has always been necessary to put down a larger deposit for Buy-to-Let Mortgages and most lenders at the moment are looking for at least 25%.
In theory this could be possible, but almost all lenders won’t let you do this, as essentially this would still be 100% lending, which no longer exists due to the aforementioned risk involved with such a venture.
Yes, this happens constantly. Generally, it’s what the industry affectionately dubs the “Bank of Mum and Dad” (both birth and adopted parents, as well as carers & legal guardians) gifting the deposit, or other family members such as Aunties & Uncles. We have even seen instances where family friends can gift you money. These are all valid options, as long as they can evidence the funds, prove who they are and confirm they are not expecting repayment of the gift at any point in time.
If you are buying as a sitting tenant and your landlord or family member has given you a discount from the open market value, or if you qualify for a discount under the Right to Buy scheme, then normally you don’t need to put any of your own money in as deposit. This is due to the equity being already “built-in” to the deal.
Please note that the above information is for reference purposes only and is not to be viewed as personal financial or mortgage advice.