How much deposit you need to purchase a property would depend entirely on your circumstances and what you are trying to do. Here your friendly Mortgage Broker in Birmingham will explain how much you might need given your situation.
The times of 100% and 125% mortgages are far behind us. Also, with the credit crunch behind us, lenders are feeling more confident about offering 95% mortgages.
It seems reasonable to show to lenders that you can upkeep your responsibility to save each month when a mortgage is involved – this offers some form of comfort to the lenders that they have invested correctly. But it also shows you have something to lose if it does appear that it is becoming more difficult for you to keep up your mortgage repayments.
Saving for a deposit can be the hardest part for many people and one of the biggest obstacles in the property market, and there are certain factors which could make it seem even more daunting.
There are often many questions about deposits, so here at our Mortgage Broker in Birmingham, we try and answer as many as possible.
In past years 100% mortgages were readily available for first time buyers in Birmingham, and some companies were even offering a 125% loan to value mortgages. So, if you were buying a property valued at £100,000, they would lend you up to £125,000.
Lenders need a deposit from you, so their lending risk is reduced. If they lend you 100% of the purchase price and for some reason, you fall into arrears, they would need to take possession of the property, then it only takes a small dip in house prices, and it would then be a loss on their end.
Also, there is thought that if you haven’t invested some money, whether it be yours or a relative’s, into your home, then you might find it a bit too easy to “walk away” if it came to you having some difficulty paying monthly payments. It could also be argued that if you are not in a position to save up 5% of the purchase price for a deposit, then putting you on the property may not be a viable option for some lenders.
If the deposit you put down is higher than most, then more often than not, the lender may offer you a lower interest rate because they will view you as less of a risk. It is important to know that products are offered in bands of 5%, with 95% of Mortgages being the most expensive.
There is a possibility that this may be acceptable. The lender will consider it as a monthly payment and therefore put it down as an additional credit commitment. This makes it so as you will be granted a smaller mortgage as opposed to the one you originally would have qualified for if you had not borrowed the deposit. The reason for lenders not liking this is because you are essentially borrowing 100% of the purchase price.
Many lenders do accept gifted deposits, and these can be from a variety of people, most of whom are from friends and family. There are certain obligations that the ‘donor’ will have to adhere to such as being willing to confirm it is a gift and not a loan. They must also provide ID and proof of funds to help the lenders stick to anti-money laundering regulations.
In contemporary settings, if it weren’t for the ‘Bank of Mum and Dad’, then the property market would be entirely different as to how we know it now.
As stated previously, certain forms of identification and documents are needed to evidence funds, as lenders like to see how the monies have been built up and been saved.
If it appears that you have had any large deposits moved into your bank account recently, then you will need to provide documentary evidence for it. For example, if you have recently sold a car, then you will need to provide the receipt and the amount you sold the asset for – this should match the money shown in your bank account.
Large cash deposits are usually a big problem, especially when it comes to audit trails, and this is sometimes one of the trickiest parts of the application. The longer the funds have been in your account then, the easier it will all be.
If you are selling a property, then the Memorandum of Sale provided by the Estate Agent will be sufficient proof.
If you qualify for the Government’s Help to Buy Scheme, then the minimum will still be 5%. This can then be topped up to 25% via the equity loan so you will obtain a lower rate mortgage. An important factor to bear in mind is that if this is an option you consider, then the 20% deposit provided by the Government is a loan; unlike the Gifted Deposit, it will need paying back.
Not necessarily. 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 deposit. This works well if you have the Right to Buy in Birmingham from your Local Authority or other social landlords.