Deposits
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Saving for a house deposit can be the biggest hurdle to getting on the property ladder, especially if you’re already renting.
Nevertheless, a deposit is usually required, so reduce non-essential spending and save as much as you can. Even a small amount per month can soon add up.
Why do I need a deposit to buy a house?
Banks don’t usually give out mortgages to cover the full cost anymore.
Back in 2008, during the financial crisis, house prices fell a lot. People owed more money to the banks than their homes were worth. So now, banks want you to put some money down upfront to make sure they won’t lose out if they need to repossess and sell your home.
This upfront money you put down is called a deposit. If house prices fall, the deposit you put in (which becomes your ‘equity’ in the home) is the first thing that gets affected. If the bank has to take back your home, they hope they can still recover what you owe them.
How much deposit do I need to buy a house?
It really depends on your situation.
Try to save as much as you can. The more you can put down, the less you’ll need to borrow. That means lower monthly payments or paying off your mortgage faster.
Usually, the smallest deposit you need is 5% of the price you’re buying at. But if you can put down more, like 10% or 15%, your interest rate might get better.
The bank wants to make sure they can get their money back if you can’t pay them. That’s why they’re careful about how much they lend you. If you had a 5% deposit and then house prices drop, you might owe more than what your home is worth. So, the interest rates for mortgages with 5% deposits are usually higher than for ones with 10% or 15% deposits. The bigger the deposit, the less risk to the bank.
The bank also checks your credit history to see if you’ve missed payments on other commitments before. If you have, they might ask for a bigger deposit or charge you a higher interest rate.
For a better idea of how much deposit you’ll need, talk to a mortgage advisor like us. We’re here to help!
Where can my house deposit come from?
Everyone involved in the purchase must comply with anti-money laundering regulations. You need a clear paper trail to evidence where the deposit has come from.
The money itself can come from a few sources. Some of the common ones are:
Savings
Usually, you need to show six months’ worth of bank statements to prove how you’ve been saving. Keeping cash hidden at home won’t count! If you suddenly put a lot of money into your account, your lender or solicitor might ask where it came from. So, if you sold something, be ready to show proof.
If someone else puts money into your account, it’s considered a gift.
If you’re buying your first home, think about getting a Lifetime ISA. It can help you save more for your deposit. Bear in mind the account needs to be open for at least twelve months before you can take money out, so if you’re looking to buy soon, it probably won’t be right for you.
Why The Mortgage Store Chorley?
Exclusive rates you won’t get directly from lenders
A dedicated point of contact from initial enquiry right through to completion and beyond
Appointments seven days a week, to best suit your schedule
Ongoing rate monitoring until completion as standard
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Family gift
Sometimes, if you’re lucky, your family might help out with the money. Most lenders only accept gifts from close family members like parents, grandparents, and siblings. Some might also accept gifts from other family members like aunts, uncles, or cousins.
They might not accept a gift from your unmarried partner, as things can get messy legally if you break up.
The person giving you the gift needs to sign a form. It says they’re not taking a legal interest in the property or going to ask for the money back; it’s a real gift, not a loan. If they’re moving in with you or giving it as a loan, it will limit your options in terms of lenders.
Your family member needs to show their ID and prove where the money came from. In rare cases, lenders might even ask for proof of your relationship, like birth certificates.
Investments
Such as Premium Bonds or stocks and shares. As well as bank statements, you’ll need to provide your investment record.
Inheritance
Often evidenced by a bank statement and some sort of documentation from the solicitor who dealt with probate confirming where it has come from. The deceased does not have to be a family member.
Can I borrow the deposit?
The vast majority of mortgage lenders will not accept a deposit that has come from borrowing on a credit card or loan. Those that do will factor the repayments into their affordability calculation.
Some lenders offer special products if a family member wants to help with a deposit but does not want to gift the cash. The funds are locked away in a savings account for a set period of time (usually five years). The savings accrue interest but the bank can take from this pot or keep hold of the funds for longer if you miss a payment.
Can I get a mortgage with no deposit?
Potentially, yes, though having a deposit should give you more options.
Read our guide to getting a mortgage with no deposit for more information.
How can The Mortgage Store Chorley help with deposits?
We can’t save up for you, but we can give guidance on what deposit you’re likely to need and let you know if where it’s coming from is going to be acceptable.
Contact us today to start your home-buying journey.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
