The amount of deposit you need to buy a property entirely depends on your personal circumstances and what it is exactly what you are looking to achieve. Here we explore how much you may be required to save for, depending on those factors.
In previous years, 100% mortgages were readily available and some lenders were offering 125% loan to value mortgages. What this means is that if you were buying a property valued at £100,000 they would lend you up to £125,000. It’s no surprise with that method, that things went very wrong.
Lenders require you to put down a deposit simply to lower their lending risk. If they lend you 100% of the purchase price and you somehow fall into arrears, leaving them to take possession of the property, then it only takes a minor reduction in house prices for them to suffer a loss. Of course, this is something they would like to avoid.
There is also the thought some have that says if you haven’t invested some of yours or your family’s money into your home, then you might find it a bit too easy to “walk away” should the going get tough and you were finding it difficult to keep up your monthly repayments.
Also, if you are not yet able to save up say, 5% of the property purchase price yourself then it could be debated that you’re not yet prepared to get onto the property ladder.
No, but if you can find 5% of your own resources then you might find yourself qualifying for the government’s Help to Buy equity loan scheme. This only applies to new build properties. You put in 5% and the Government loans you up to 20% to make up the rest as a 25% deposit.
After 5 years you will need to see about paying the equity loan back possibly by way of a remortgage or from savings you have been able to save up during your mortgage term.
Currently, yes 5% is enough in the majority of situations. Not all Lenders will accept only a 5% deposit though, so your options may be a little more limited. Normally you will need a reasonable credit score to qualify for a mortgage.
You may still find lenders out there that would consider you for a 95% mortgage with an average credit score but the rate of interest would be higher.
Most specialist lenders would prefer to put down at least 15% deposit if you have a considerably poor credit history. As mentioned in an aforementioned point, this is purely to reduce their risk in case a repossession occurs. It is much more difficult to obtain this type of mortgage than it was in the mid-2000s but it is still possible.
It’s always been necessary to put down a larger deposit for Buy to Lets and most lenders at the moment are looking for 25%.
This may be possible in very few cases, but the vast majority of lenders won’t let you do this, as this would practically still be 100% lending and this isn’t something seen anymore.
This is something that happens all the time! Usually, it’s “bank of Mum and Dad” (birth parents, adopted parents and legal guardians) gifting or other family members.
In some cases though, family friends can gift you money, so long as they can evidence the funds, prove who they are and confirm they are not expecting it to be paid back as a loan.
If you are purchasing as a sitting tenant at a discount from the open market value, from a family member or if you qualify for a discount under the Right to Buy scheme then you usually wouldn’t need to put any of your own money in as the equity is already “built-in” to the deal.
Please remember that the above information is for reference purposes only and is not to be seen as personal financial or mortgage advice.
Date Last Edited - 17/11/2020