What deposit do I need for a mortgage?
Murray Souter, an independent mortgage adviser with ESPC Mortgages, offers advice about saving for your first house deposit and the benefits of putting down a bigger deposit.
The impact of COVID-19 on mortgage deposits
Prior to COVID-19, 5% deposit mortgages were fairly commonplace, with many lenders offering these. However, during the pandemic many lenders tightened their borrowing restrictions and have generally lifted minimum deposit levels to 15%.
Speak to an independent mortgage adviser
Some lenders offer mortgages with lower deposits and the situation with mortgage providers is still changing. An independent mortgage adviser can look at the mortgage market and help you find the most suitable deal for your circumstances. They can also provide advice on how to boost your deposit, bringing us to…
Boosting your first house deposit
There are ways to boost your house deposit to reach the 15% level that many lenders are asking for currently:
- Shared equity loans – there are various schemes available that contribute to your deposit in the form of a loan from the government which could be added to your own 5% deposit, and you would get a mortgage for the rest. Scotland’s First Home Fund is one of these schemes and you should speak to an independent mortgage adviser to see if it is right for you.
- Family assistance – it is becoming more common for family members to ‘gift’ funds that can be used towards a deposit, and family members can also act as a guarantor.
- Lifetime ISAs – these are savings accounts where the government will offer a 25% bonus on savings for first time buyers when they purchase their first home.
Benefits of a bigger house deposit
The bigger your deposit, the smaller your loan and the lower the monthly payments.
Plus, as the deposit size increases, the interest rates available tend to come down as it is less risky for the mortgage lenders.
Paying over Home Report valuation
It is important to note that the lender will calculate the level of borrowing based on the value of the property and not the purchase price, which is often higher than the valuation. In this instance, the borrower would be expected to cover the minimum 15% deposit but also the amount paid above the property’s valuation.
As an example, if you wanted to buy a property valued at £100,000, in the present circumstances you would generally need a deposit of around £15,000. If you paid £105,000 to secure the property, you would be required to contribute the 15% deposit plus the £5,000 paid above the property’s value so a total contribution of £20,000 would be required.
As independent mortgage advisers, ESPC Mortgages can help with all aspects of understanding your budget, applying for a mortgage and dealing with the relevant insurance requirements. Give us a call on 0131 253 2920.
The information contained in this article is provided in good faith. Whilst every care has been taken in the preparation of the information, no responsibility is accepted for any errors which, despite our precautions, it may contain. No individual mortgage advice is given, nor intended to be given in this article.
The initial consultation with an adviser is free and without obligation. Thereafter, ESPC Mortgages charges for mortgage advice are usually £350 (£295 for first time buyers). YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR OTHER LOANS SECURED AGAINST IT.
ESPC (UK) Ltd is an Appointed Representative of Lyncombe Consultants Ltd which is authorised and regulated by the Financial Conduct Authority.