HOW BIG A DEPOSIT DO I NEED?
There is no standard amount that people need to have saved up before they can get a mortgage. But a basic principle to keep in mind is that the bigger the deposit you have, the cheaper the mortgage deals you will be able to get. This is because the more money you have to put towards a house, the less of a risk you pose to a lender. In recent years first time buyers have typically used a 20% deposit to buy a house.
But don’t despair if you’re struggling to save a large deposit there are still many mortgages out there for first time buyers.
90%, 95% AND 100% MORTGAGES
The number of 90% and 95% mortgages on the market is on the increase so provided you meet lenders’ affordability criteria if you have a 10% or 5% deposit it may be possible for you to get a mortgage.
So for a £200,000 house you would need to have £20,000 in savings for a 90% mortgage or £10,000 in savings for a 95% mortgage. However 100% mortgages, where you don’t need any deposit, are virtually non-existent unless you have additional financial help from your family.
SMALLER DEPOSITS WITH HELP TO BUY
There are also two government schemes aimed at helping people with small deposits to buy a house. Through Help to Buy, buyers with a deposit of between 5% and 20% can purchase property using either special mortgages or using an interest-free Help to Buy equity loan.
Whether you will be better off with an ordinary mortgage or using one of the government schemes will depend on your individual circumstances. An adviser will be able to talk you through your options and help you find the most competetive deals for you.
DEPOSITS FOR MORTGAGE DEALS
To get the most competitive mortgage deals on the market you will usually need a deposit of 25% upwards and some of the more competetive deals require 30% or even 40% deposits.
For most first time buyers, getting a deposit together this big will be unrealistic so you may want to look into alternative ways of funding your home purchase. Things worth considering are shared ownership and shared equity schemes, buying a property with friends or getting first time buyer help from your parents or family offset mortgages.
For more information and advice on your options, feel free to call me