PROPERTY DEPOSITS EXPLAINED.
Disappointment is felt by those who start the house buying process upside down. What I mean by upside down are those that begin to look for the property without first getting a financial check-up.
An affordability calculation is always the best place to start and can lead to you obtaining a Decision in Principle from a specific lender. These individuals may know or hope they can obtain a mortgage but do not know how much they can borrow at this stage.
What happens in this scenario, is they start their property search, viewings fully booked up and realise after they have fallen in love with the perfect house, they are short on funds and cannot afford the house. Which usually results in stress, tears, and the need to start looking again at a lower price.
How much deposit do I need to purchase a property?
The most asked question, and to be honest, there is no one answer. Down to the level of a deposit required can be influenced by a few factors, other than house price.
- Your maximum mortgage amounts
- The property prices
- The property types
- Available Loan to value (LTV) products from the lender
The short answer would be 10-25% to the value of the property is the minimum requirement.
Below I have listed a little more detail to the list above to help you understand when the rules and requirements for the deposits may change.
1 - You need to obtain an understanding of your affordability and how much a lender is prepared to lend to you based on your income and expenditure, to include any existing credit or contractual payments. The process will help you to understand the house price bracket to search.
2 - The difference between your maximum mortgage affordability and the property purchase price will form your deposit. Depending on your affordability it can push your deposit amount above the standard 10-25%. If on the other hand, your maximum mortgage affordability is more than the property value you, will need to meet the lenders minimum deposit criteria.
3 - The type or location of the property may mean the lender has a variation in the minimum deposit required. For instance, some lenders will lend a maximum of 85% on new builds and flats. If you are utilising a right to buy offer there may also be an extra deposit of 10% of the discounted price and others may accept the discount as the only deposit required.
4 – Now, a few mortgage lenders are offering 90% LTV; this can be especially useful for first-time buyers. Other lenders are offering a maximum of 85% to as low as 75% LTV loans.
It is wise to use the maximum deposit you can too reduce the size of the loan and the repayments over time. You need to take into consideration the additional funds required to complete the property purchase. Additional expenditure could include solicitor fees, application and valuation fees, broker fees and stamp duty to name the common few. Depending upon the condition of the property, you may require specialist reports for damp and structural soundness which you need to plan for if there are signs of defeats.
A deposit is a big part of the process
The deposit could take you years to build up to the desired amount. There are other ways of gaining a (larger) deposit.
Gifted deposits are acceptable but again, something to research and consider when choosing a lender. How a gift is given and by whom is equally as important.
Help to Buy loans are available to boost your ability to purchase a property. This loan is a government incentive worth looking into if you are considering a newly built home. The loan repayments start after five years and will be taken into consideration when making an application to ensure they do not cause hardship when repayments become due.
Shared Ownership properties are available from many housing providers, this type of purchase will reduce the amount required at the onset by allowing you to purchase between 25-75% of the property and paying rent on the remaining share. You then could increase your share ownership over time to 100% and eventually owning the entire property. Useful again for a first-time buyer and home movers with the potential to borrow more over time with promotions, increased income and accumulated savings. The rental payments on the unpurchased percentage will be taken into consideration when processing the application
If you have any questions, please feel free to ask. Please send them to me via email or catch me on one of the social sites. You are welcome to book a FREE DISCOVERY SESSION to have the above points clarified for your circumstances and property goals.
Your property may be repossessed if you do not keep up repayments on your mortgage or any of other debt secured on it.