First Time Buyer Mortgage Advice in Birmingham
The amount you need to put down to purchase a property in Birmingham comes down to two factors; what are you looking to achieve and your financial situation. Seeking the help and assistance of an open and honest Mortgage Broker in Birmingham can be beneficial as they can break down the amount you need for your situation.
100% and 125% mortgages are now firmly in the past. As we left behind the financial incident of the Credit Crunch, lenders seem more confident about offering customers the ability to take out a 95% mortgage. Prior to being eligible to take out your mortgage, you do need to show to the lender that you can manage your monthly payments responsibly and on time.
By doing this, you are showing the lender that you are a reliable applicant and are in a serious position to proceed. From a lender’s perspective, they don’t want to deal with a borrower who inhabits bad spending behaviours and falls into arrears which would result in the lender repossessing the home.
When speaking to customers, we do find that saving up for a deposit will be the most challenging of the process. This specifically applies to First Time Buyer in Birmingham and can be a big hurdle to them in the mortgage process. On top of this, there are a range of factors that could make it seem a lot more intimidating to someone without experience in this field.
Through our experience as a Mortgage Broker in Birmingham, we do find many inquiries about deposits. Below are some of the most common ones we receive.
Why do I need a deposit?
In the years leading up to 2007 when the market crashed and we entered the Credit Crunch, 100% mortgages were readily available for first time buyers in Birmingham. There were cases where mortgage lenders offered up 125% loan-to-value mortgages. This worked when you buy your property that is valued at £125,000 and they would lend up you to £150,000.
To lower lending risk, they will require you to put down a deposit. If they lend you 100% of the purchase price and, unfortunately, fall into arrears, they would need to repossess the property. It would only take a slight fluctuation in that area’s house prices, which would be a loss on their end.
In the case where you haven’t invested some money, even if be from your income or a relative’s, into your home, and come across any hurdles in the midst of your term, it would be too simple for you to “walk away”. In the circumstance where you cannot save up a deposit of at least 5% of the property purchase price, you may not be in a position where you are financially ready for such a big commitment just yet.
What about putting down more than a 5% Deposit for a Mortgage?
For those who have a larger deposit to put down that is above the usual, then in many cases, you’ll find that your lender may offer you a lower interest rate. As mentioned, this all depends on the risk as they will lend you less, making you less of a risk. It is key to be aware that products are offered in different of 5% with 95% of Mortgage being the most expensive of the bunch.
Can I take out a Personal Loan for the deposit?
This isn’t a very common option, however, there is a possibility to do this. Your mortgage lender wil put this down as a monthly payment which would mean that it is put down as an additional credit commitment for you. Because of the nature of this situation, there is a chance that you will be granted a smaller mortgage instead do the one you initially were qualified for you if you didn’t borrow the deposit from a credit provider.
We do find that mortgage lenders massively dislike this as even though part of the payment will be going to another party, you are technically borrowing 100% of the purchase price, adding interest on both the mortgage and the loan individually.
Do lenders accept a Gifted Deposit for a Mortgage?
Many mortgage lenders will accept a gifted deposit and these can come from a range of people. Usually, this is from friends and family. There are particular rules that the ‘donor’ will need to follow including a confirmation form stating that the deposit is purely a gift and not a loan that requires to be paid back at some point in the future. Along with this, lenders will proof of ID and evidence of funds so you can keep in line
Also known as the ‘Bank of Mum & Dad’, we believe that gifted deposits have impacted the property market positively by providing an opportunity for many people looking for a helping hand on the property ladder.
Evidencing the Deposit
As previously mentioned, you are required to provide specific forms of ID and documents to show where your funds came from because lenders like to see how your income has accumulated and how you have saved up.
In the case where it is shown in your account that you have had any large deposits moved into you bank account recently, the lender may ask you to provide documents to show exactly where it comes from.
For instance, if you have recently sold something expensive such as a car or an item that is of high value that you’ve been holding onto, you are required to provide the receipt and the amount you sold the asset for, this should match the amount shown in your bank account.
Massive cash deposits do set off alarm bells and pose as a problem, particularly when it comes to audit trials. Sadly. this can be one of the most difficult parts of the application. The general rule is the longer the funds have remained in your account, the more straightforward it will be for you and the lender.
In the case where you are selling your home or a property in your portfolio, then the Memorandum of Sale provided by the Estate Agent will be sufficient proof.
Buying as a Sitting Tenant/Buying from a Family Member – Is a deposit still needed?
If you are in this situation, you may not necessarily need a deposit for a property. For example, if a house is worth £100,000, and you have been it at some form of discount like £90,000, then some lenders will count this as your deposit. This is beneficial if you have the Right to Buy Scheme from your local authority or other social landlords as there is a possibility you may be offered a discount here too.
For more information on this, check out our article on ‘Buying as a Sitting Tenant in Birmingham‘.
Date Last Edited: December 6, 2023
