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Can I Buy a Home With a Small Deposit in London?

The era of 100% and even 125% mortgages feels like a distant memory. With the credit crunch now in the past, lenders have regained confidence and are once again willing to offer 95% mortgages to first time buyers in London.

Demonstrating a consistent ability to save each month is a reasonable expectation. It not only provides a sense of financial discipline but also assures lenders that you have a stake in the process, indicating a commitment to meet your mortgage obligations even in challenging times.

We understand that saving for a deposit can be a daunting task for many individuals, often serving as a significant hurdle for those aiming to enter the property market. This challenge becomes especially pronounced for individuals with families or those currently residing in rented accommodation.

Is it better to invest more than a 5% deposit for a mortgage?

A larger deposit typically translates to a lower interest rate, making it a more cost-effective and advantageous choice in the long run. This is primarily because a substantial deposit signals reliability to lenders.

Different bands in interest rates exist, influenced by factors such as the size of your deposit.
The percentage of your mortgage relative to the property’s value provides lenders with insights into your commitment.

Higher deposits lead to lower interest rates, ensuring a more secure and satisfying home purchase experience in the long term.

Can I take out a personal loan for the deposit?

In certain limited scenarios, successfully achieving a mortgage with a smaller deposit is possible. The lender may consider the monthly payment as an additional credit commitment, allowing for a reduced mortgage amount.

However, this approach is generally met with resistance from most lenders, as it essentially involves borrowing 100% of the purchase price.

Do Lenders accept gifted deposits for a Mortgage?

Many lenders accept gifted deposits, including those from family members and friends. The sender of the gift needs to confirm that it is indeed a gift, not a loan, and must provide identification and proof of funds for anti-money laundering purposes.

Some individuals turn to the “Bank of Mum and Dad,” where parents gift funds to their children as a contribution towards the deposit.

Evidencing the Deposit

Bank statements play an important role in evidencing funds for anti-money laundering purposes. Lenders prefer a clear picture of how the money has been accumulated, offering genuine insights into your financial situation.

Documentation supporting significant deposits, such as receipts from asset sales, ensures transparency and strengthens your financial credibility. Large cash deposits may pose challenges, but a well-documented audit trail can simplify the application process.

Buying as a Sitting Tenant/Buying from a Family Member

Generally, genuine discounted purchases, such as acquiring a property below its market value, can be accepted by some lenders as the guaranteed deposit.

For example, if a property is worth £100,000 and is offered at a discounted price, like £90,000, certain lenders may recognise this as a valid deposit.

This is particularly relevant for individuals eligible for Right to Buy Schemes from local authorities or other social landlords, where our mortgage advisors in London can help in finding suitable Right to Buy mortgages in London.

Date Last Edited: February 1, 2024

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