What is a reasonable Deposit for a Mortgage?
The happy days of 100% and even 125% mortgages seem a long time ago. Now the credit crunch is behind us, and Lenders tend to be more confident again to offer 95% mortgages.
I feel that it is reasonable that you should show you can save each month. It also gives Lenders comfort that you have some “skin in the game”.
In other words, you have something to lose should it start to become more challenging to keep up your mortgage repayments.
We know it’s challenging to save up a deposit for many people, and this is their primary barrier to entry into the property market. It is daunting if you have a family or are in rented accommodation.
We do get many questions about deposits so we’ll try to answer as many as I can for you here.
Is it better to invest more than a 5% Deposit for a Mortgage?
Short answers, yes. The higher the deposit the lower interest rate you will receive and this usually is more cost-effective and helps you.
Reasons being you appear more reliable to them. Products offered in bands of five.
These bands differ in price depending on various factors such as your deposit.
The percentage of your mortgage provides lenders with an idea of how invested you are to your mortgage, although considering – the higher the interest rate, the more expensive. This means that the higher your deposit, the more secure you will be when it comes to purchasing your dream home meaning you will be happier in the long term.
Will I Benefit From a Help to Buy ISA?
If you are a First-Time Buyer, you can save up to £200 a month towards your first home with a Help to Buy ISA. The Government will then boost your savings by 25%. In other words, that’s a £50 bonus for every £200 you save which works to your advantage.
You can receive a generous bonus of up to £3,000. It’s an excellent scheme, and it ringfences the amount you are saving away from the temptation of your current account.
Can I take out a Personal Loan for the deposit?
In a limited number of circumstances, it can be successfully achieved.
The Lender will make the monthly payment as an additional credit commitment, therefore, grant you a smaller mortgage.
As a result one will qualify if you hadn’t borrowed the deposit. Most lenders oppose this as you are essentially borrowing 100% of the purchase price.
Do Lenders Accept Gifted Deposits for a Mortgage?
Yes, most accept gifted deposits from family members and friends can be acceptable too. The sender of the gift will need to confirm it’s a gift, rather than a loan, and need to produce ID and proof of funds for anti-money laundering purposes.
Others have turned to the Bank of Mum and Dad, gifting their children funds towards a deposit.
Evidencing the Deposit
For Anti-Money Laundering purposes, providing bank statements help to evidence funds. Lenders like to see how the money is being built up as this provides more of a genuine insight.
If you have deposited a large amount into your account, you may need evidence to support this.
For example, if you have sold a car, then you’ll need a receipt and the amount you have sold the asset for would match the amount paid into your bank account. This will highlight reliable sources backing up your finances.
- Large cash deposits can be a considerable obstacle.
- The longer funds have been in your account, the easier this all gets.
- Proving the source of the deposit (audit trail) can be the trickiest part of the application sometimes.
If you are selling a property, then the Memorandum of Sale provided by the Estate Agent is your proof.
Help to Buy Equity Loan and New Build Mortgages
It’s still 5% as a minimum if you qualify for the Government’s Help to Buy scheme. It can be topped up to 25% via the equity loan so you will obtain a lower rate mortgage.
Choosing to opt-out from the scheme results in the 20% deposit gift provided by the Government changing meaning you will have to pay it back as a loan.
Buying as a Sitting Tenant/Buying from a Family Member
Do I need a Deposit?
Usually. If it is a genuine discounted purchase, i.e. the house is worth £100,000, and you have been offered it for example £90,000, then some Lenders will accept this as your guaranteed deposit.
This works well if you have the Right to Buy from the Local Authority or other Social Landlord.