The days of 100% and even 125% mortgages seem a long time ago. Now the credit crunch is behind us, lenders tend to be more confident again to offer 95% mortgages. We feel that it is reasonable that you should show you are able to save each month. It also gives lenders comfort that you have some “skin in the game”. In other words, you have something to lose should it start to become more difficult to keep up your mortgage repayments.
We know it’s difficult to save up a deposit for many people and this is their major barrier to entry into the property market. It really is daunting if you have a family or are in rented accommodation.
We do get lot of questions about deposits so we’ll try to answer as many as we can for you here:
Yes. The higher the deposit you can put down the lower the interest rate the lender might be able to offer you. This is because you represent less of a risk to them. Products are offered in bands of 5%. 95% mortgages are the most expensive ones, followed by the 90% mortgages, then 85%, 80% and so on.
In a limited number of circumstances that can be possible. The lender will take the monthly payment as an additional credit commitment and therefore grant you a smaller mortgage as a result than the one would have qualified for had you not borrowed the deposit. Most lenders frown on this as you are essentially borrowing 100% of the purchase price.
Yes, most accept gifted deposits from family members and friends can be acceptable too. The “donor” of the gift must be willing to confirm it is a gift not a loan and may need to produce ID and proof of funds for anti-money laundering purposes.
If it weren’t for “bank of mum and dad” gifting their children funds towards a deposit the property market would be in pretty poor shape right now.
These types of mortgage deposits are particularly popular amongst first time buyers.
For anti-money laundering purposes, all applicants need to provide bank statements to evidence funds. Lenders like to see how the monies have built up too.
If you have had any large deposits into your bank account recently, you will need to provide documentary evidence. For example, if you have sold a car then you’ll need a receipt and the amount you have sold the asset for would match the amount paid into your bank account. Large cash deposits are a big problem. The longer funds have been in your account the easier this all gets.
Proving the source of the deposit (audit trail) can be the trickiest part of the application sometimes.
If you are selling a property, then the memorandum of sale provided by the estate agent is your proof.
It’s still 5% as a minimum if you qualify for the government’s help to buy scheme. This can then be topped up to 25% via the equity loan so you will obtain a lower rate mortgage. Don’t forget if you opt for this then the 20% deposit provided by the government is a loan not a gift and will need paying back!
If you’re looking for help to buy advice, we can help! We can measure your affordability and check whether you qualify for any of the schemes.
Not necessarily. If it is a genuine discounted purchase, i.e. the house is worth £100,000 and you have been offered it for, say, £90,000 then some lenders will accept this as your deposit. This works really well if you have the right to buy from the local authority or another social landlord.