Deposit for Home Purchase
What Deposit will I need for a Home Purchase
One key aspect that often raises questions is the deposit. In this article, we discuss deposits for home purchase in the UK.
What is a Deposit?
In the context of home buying, a deposit is a lump sum of money paid upfront by the buyer to secure the property. This amount is a crucial component of the overall property transaction and is often a percentage of the property's purchase price.
Why do you need a deposit?
The Mortgage lender wants to know that you have an interest in this property. After all, if it costs you nothing to move in and house prices go down, you may feel that keeping up the mortgage payments is not worth it and default on your payments. While I am sure you would not do this - this is what the lender is concerned about!
The larger your deposit is, the more the lender will feel secure about lending to you and you will be offered better (lower) rates
You should appreciate that the Mortgage Lender is taking a risk in lending out money and although they can repossess a property, the sale proceeds do not always cover the costs
How much deposit will I need?
You can get a mortgage with NO deposit (see below) but you should save as large a deposit as you can. If you have a 5% deposit there will be more choice than if you have no deposit. If you can save a 10% deposit you will have more choice and lower rates. A Mortgage Broker can demonstrate what difference it would make with different deposits
Can you get a Mortgage with NO Deposit
YES! This is possible. We are currently offering 100% mortgages
Please visit our dedicated page on 100% mortgages
When do you pay a deposit
The deposit is paid AFTER you have exchanged contracts and ONLY with the consent of your Solicitor. Normally you will transfer any deposit to your Solicitors account. Your Solicitor will then transfer the money to the vendor's Solicitor
Sometimes Estate Agents may encourage you to put down a deposit on a property. You should NOT do this without first discussing with your Solicitor. Once you have paid over money you may find it difficult to recover it if something goes wrong
Key Points to Consider:
1. Deposit Percentage:
The typical deposit ranges from 5% to 25% of the property's purchase price, but can be larger than this. You should put down as large a deposit as you can easily afford. You should always retain some savings - just in case of emergency, loss of employment etc
2. Minimum Deposit Requirements:
While a 5% deposit is common, some mortgage products may require a higher percentage, especially for first-time buyers. It's essential to understand the minimum deposit requirements associated with the type of mortgage you're considering.
3. Impact on Mortgage Terms:
The size of your deposit can influence the mortgage terms you qualify for. A larger deposit often translates to more favorable interest rates and a potentially wider range of mortgage options.
Lenders offer better rates and terms if the deposit increases by a multiple of 5%. It is important to understand that you may have an 8% deposit but you will be offered mortgage rates as though you had a 5% deposit.
That should not discourage you from putting down a larger deposit - as of course, the larger the deposit, the smaller the mortgage you will need to pay off. But the rates offered to you will not change unless you can increase the deposit to the next multiple of 5%
Government Schemes and Assistance:
1. Help to Buy:
Help to Buy is not available in England. The Help to Buy scheme is designed to assist first-time buyers by providing an equity loan that can contribute to the deposit. This scheme aims to make homeownership more accessible, particularly for those struggling to save a substantial deposit.
2. Shared Ownership:
Shared Ownership allows buyers to purchase a share of a property while paying rent on the remaining portion. This can reduce the required deposit and make homeownership achievable with a smaller upfront investment.
Planning for Your Deposit:
1. Budgeting:
Start by assessing your financial situation and creating a realistic budget. Understanding your spending patterns will help you determine how much you can comfortably save for a deposit.
2. Saving Strategies:
Explore different savings strategies, such as regular savings accounts or Lifetime ISAs, that offer favorable terms for homebuyers.
Your Path to Homeownership
Buying a home is the biggest financial purchase you are likely to make. Taking advice makes a lot of sense. We can help. Contact us now with your enquiry
Ready to take the next step? Contact Mortgages Direct today, and let's start building your path to homeownership.