What property you can afford to buy is a combination of how much deposit you have available and what mortgage you would be eligible for. Saving for a house deposit is generally the number one dilemma standing in the way of first time buyers getting on the property ladder. The minimum deposit required to purchase a property is normally 5% of it’s value. A 95% loan-to-value (LTV) mortgage can generally be used to form the remainder of the purchase price in this scenario.
It’s not just first time buyers who spend time saving for a house deposit. Growing families and those looking to upsize often need to save to fund the deposit on a larger, more expensive home. 95% mortgages are readily available to those who currently or have previously owned a home, not just first time buyers.
A house deposit can come from multiple sources and what sources are acceptable differs between mortgage lenders. The below list includes common examples:
Savings – A mortgage lender can ask to see a statement or multiple statements showing the proof of funds for your deposit as well as the accumulation of the money over time.
Gifts – Whether it’s the bank of mum and dad or the grandparents, many people receive money from family to help towards purchasing a home, in particular first time buyers. Most mortgage lenders will require the person giving the money to be a family relative.
Equity – For those who currently own their own home, the equity in the property can naturally be used for the deposit on the new property once the current home is sold.
Capital Raising – For those who currently own their own home or have rental properties, pulling money out of a property to purchase another can often be done. This is called Let-to-Buy when remortgaging your current home into a rental property to allow you to purchase a new home.
In terms of purchasing property with smaller deposits, there are various schemes in place to support this.
The Help-to-Buy Equity Loan Scheme available to first time buyers allows them to purchase some new-build properties with a 5% deposit. Most mortgage lenders will not allow standard 95% mortgages on new build properties so Help-to-Buy quite literally helps people buy these properties!
The Government-backed Mortgage Guarantee Scheme supports banks and building societies offering 95% mortgages. However, many high street lenders are offering 95% mortgages independently of this scheme now COVID-19 related market uncertainty has eased somewhat.
The new First Homes Scheme allows first time buyers to purchase a new-build property with less than 5% of the property’s true market value. The scheme allows buyers to purchase a property at a subsidised value and hence the 5% deposit on the subsidised value is less than 5% of the true value. As the scheme is in its early phase, there are very few properties available to be purchased through it.
Shared Ownership allows people to purchase a share of a property from a Housing Association. Typically, the minimum share purchased must be 25% of the property’s value. A mortgage is then acquired on the relevant share and the deposit required is only 5% of the value of the share purchased. Monthly rent is paid to the housing association for the portion of the property not purchased.
House deposits can come from various sources and the sources accepted will depend on the mortgage lender applied to. If you want to check if where your deposit is coming from will be accepted, get in touch! Those looking to get onto the property ladder should be aiming to save 5% of the value of a property they can afford as a minimum. However, if that’s not possible for you, Shared Ownership could be your solution. If you want to know more about house deposits, please feel free to get in touch.