How Much Deposit Do I Need To Buy A House in Birmingham

How Much Deposit Do I Need to Purchase a House in Birmingham?

How Much Deposit Do I Need to Purchase a House | MoneymanTV

First Time Buyer Mortgage Advice in Birmingham

What you are trying to achieve and how your financial situation looks determines how much deposit you need to put down to purchase a property in Birmingham. Here your open and honest Mortgage Broker in Birmingham will break down how much you might need given your situation.

The times of 100% and 125% mortgages are now firmly in the past. Now that the Credit Crunch is a thing of the past, lenders seem more confident about offering customers the ability to take out a 95% mortgage. Before being eligible to take out your mortgage, it is necessary that you prove to the lender that you can keep up your monthly repayments responsibly and on time. 

Proving to do so will assure the lender that they can trust you and that you are not a risk to them in the future. The last thing a lender will want to deal with is for a borrower to be reckless with their income and fall into arrears, which would mean the lender has to repossess the home.

Saving for a deposit is often viewed as the most challenging part of the process for many First Time Buyers in Birmingham and one of the biggest hurdles in the property market. Along with this, various factors could make it seem even more intimidating to someone without experience in this field.

There are often many questions about deposits, so here at our Mortgage Broker in Birmingham, we try and answer as many as we can for our customers in need.

Why do I need a deposit?

Pre-2007, before the market crashed and we entered the Credit Crunch, 100% mortgages were readily available for first time buyers in Birmingham. In some cases, mortgage lenders were even offering 125% loan-to-value mortgages. What this means is, if you were buying a property valued at £125,000, they would lend you up to £150,000.

To reduce their lending risk, lenders will need 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.

Also, if you haven’t invested some money, whether it be from your income or a relative’s, into your home, then suddenly encountered any hurdles during your term, it would be too easy for you to “walk away”. Not to mention that if you cannot save up a deposit of at least 5% of the property purchase price, you may not be financially ready for such a significant commitment just yet.

What about putting down more than a 5% Deposit for a Mortgage?

If you happen to put down a larger deposit than the usual standard, then more often than not, you’ll find that your lender may offer you a lower interest rate. Again, this all comes down to risk because they will lend you less, making you less of a risk. It is essential to know that products are offered in different bands of 5%, with 95% of Mortgages being the most costly of the lot.

Can I take out a Personal Loan for the deposit?

You might find that this is indeed a possibility in some cases, though it is not very common. Your mortgage lender will consider it as a monthly payment and therefore put it down as an additional credit commitment on your part. As this is the case, you will likely be granted a smaller mortgage rather than the one you originally would have qualified for if you had not borrowed the deposit from a credit provider.

Mortgage lenders widely dislike this because although part of the payment will be going to another party, you are essentially borrowing 100% of the purchase price, plus interest on both the mortgage and the loan individually.

Do lenders accept a Gifted Deposit for a Mortgage?

The majority of mortgage lenders will accept a gifted deposit, and these can come from a variety of people. Generally speaking, this is from friends and family. There are specific rules that the ‘donor’ will have to adhere to, such as confirming that it is purely a gift and not a loan that is needed to be paid back at any point in time. They must also provide ID and proof of funds to help the lenders out with anti-money laundering regulations.

We can safely say that if it weren’t for the ‘Bank of Mum and Dad’, the property market would look completely different.

Evidencing the deposit

As mentioned earlier, various specific forms of ID and documents are needed to evidence where your funds came from, as lenders like to see how your income has been built up and how you have saved up.

If it is showing in your account that you have had any large deposits moved into your bank account recently, then you will need to provide the lender with documents to evidence exactly where it came from. 

For example, if you have recently sold something expensive like a car or something highly valued that you’ve been holding onto, you will need to provide the receipt and how much you sold the asset for, which should match the amount shown in your bank account.

Large cash deposits usually present themselves as a significant problem, especially when it comes to audit trials. Unfortunately, this can sometimes be one of the trickiest parts of the application. The longer the funds have been in your account, the easier life will be for you and the lender.

If 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.

Help to Buy Equity Loan & New Build Mortgages

If you qualify for the Government’s Help to Buy Scheme, the minimum deposit required will still be 5%. You can top this up to 25% via the equity loan, which will allow you to obtain a lower rate mortgage. A vital factor to bear in mind is that if you consider this option, then the 20% deposit provided by the Government is to be seen as a loan. Whereas a Gifted Deposit is a gift, the Government Loan will need to be paid back.

Buying as a Sitting Tenant/Buying from a Family Member – Is a deposit still needed?

You may not always necessarily need a deposit for a property. If the house is worth £100,000, and you have been offered it at some form of discount, for example, £90,000, then some Lenders will accept this as your deposit. This works well if you have the Right to Buy Scheme from your Local Authority or other social landlords, as you may be offered a discount here too. & Birminghammoneyman are trading styles of UK Moneyman Limited, which is authorised and regulated by the Financial Conduct Authority.
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