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The amount of deposit you will need for a property and the process of what you are trying to do, will be completely dictated by your own personal circumstances. Here we explore how much deposit may be required for you and your situation.
In the past, it was quite common to come across 100% mortgages. Before they were nationalised, even Northern Rock was offering 125% loan-to-value mortgages. What that means, is if you were buying a property valued at £100,000 they would lend you up to £125,000, and yet they were shocked when everything went wrong.
The reason that lenders require you to provide a deposit, is to reduce their lending risk. If they lend you 100% of the purchase price and you end up in any kind of debt, they would then have to take possession of the property. All it takes then is for house prices to change, for them to be at a loss, which of course they don’t like.
There is also a perception that if you haven’t invested some of your own or your family’s money into your home, then you might be more inclined to call it quits if things get tough and you can’t afford your monthly repayments. It could also be argued that if you can’t save up for or with help, make up at least a 5% deposit for a property, then you likely aren’t ready for a jump into the property world.
Directly, no they are not able to do this. That being said, if you can find 5% of the deposit from your own funds, then there is still a chance you could qualify for the government’s Help to Buy equity loan scheme. With this scheme only applying only to new build properties, the concept is that you put in 5% and the Government loans you up to 20%, making up a 25% deposit. After 5 years you need to start looking at paying the equity loan back possibly by way of a remortgage or from savings you have been able to make over the length of time that has elapsed since the start of your term.
Generally speaking, yes 5% is enough for the majority of mortgage types. It does vary between lender though and some will accept only a 5% deposit, limiting the paths you can take. To combat this, you will normally need a reasonable credit score to qualify for a mortgage in London. There are the odd lenders out there that may consider you for a 95% mortgage with an average credit score, but the rate of interest would also be higher than other mortgages.
Most specialist lenders will require at least 15% deposit if you have a less than favourable credit history. As touched upon earlier in this article, this is simply to reduce their risk in the event of a repossession. It is a lot harder to obtain this type of mortgage than it was in the mid-2000s but in some cases may still be a possibility.
It has always been a requirement to put down a larger deposit for Buy-to-Let Mortgages and most lenders at the moment are looking for around a minimum of 25%.
Technically this could be possible, but almost all lenders will not allow this, as essentially this would still be 100% lending, which no longer exists due to the aforementioned risk involved with this type of deal.
Yes, this happens all the time. Generally, it’s what the industry affectionately has titled the “Bank of Mum and Dad” (both birth and adopted parents, as well as carers & legal guardians) gifting the deposit, or other members of your family, such as Aunties & Uncles.
We have even seen cases where family friends are allowed to gift money too. These are all valid options, as long as they can evidence the funds, prove who they are and confirm they are not expecting you to pay them back at any point in the future.
If you are looking at buying as a sitting tenant and your landlord or family member has given you a discount from the open market value, or if you qualify for a discount under the Right to Buy Mortgage scheme, then normally you won’t be required to put any of your own money in as deposit. This is due to the equity being already “built-in” to the deal that is being made.
Please note that the above information and guidance is for reference purposes only and is not to be viewed as personal financial or mortgage advice.