See how much deposit you need for a mortgage, and how first-time buyers in your area are paying.
On March 3, 2021, the Chancellor announced a mortgage guarantee scheme for first-time buyers and homemovers in his Budget statement. The government will issue a guarantee to banks in order to encourage them to offer 95% mortgages. This will help make it easier for people to purchase homes with a 5% deposit.
The scheme launches in April 2021 and ends December 2022, with new and existing properties up to £600,000 eligible. Check out our guide for more details on the 95% mortgage guarantee scheme.
You may still be able to get a mortgage with as little as 5% of the property’s value. However, It is now increasingly difficult for many borrowers to purchase a home where their down payment is less than 10%.
This might soon change, as several major banks have already signed up for new 95% mortgages under the government’s (implemented April 2021) mortgage guarantee scheme that is set to launch.
Here is your required deposit depending on each size:
5% deposit: £10,000
10% deposit: £20,000
15% deposit: £30,000
In order to calculate what you’ll need for a down payment, there are two things you should keep in mind:
If you’re planning on buying property in your destination, speaking to the local estate agent is the best place to start. Hiring an agent will save you time and money, but don’t count on the purchase price to be lower than its asking price.
For a more concrete idea of possible prices in your search area, you can look at the Land Registry’s price paid tool.
If possible, you’ll want to save more than 5% of your income in order to enjoy a higher savings rate. For example:
The larger your mortgage deposit, the smaller your loan will be. The smaller your loan is, the cheaper your monthly repayments will be.
Better mortgage deals: a higher deposit reduces your risk to the mortgage lender, which gives you better rates. For example, 90% of mortgages are generally priced around 0.7%-1% cheaper than 95% of deals.
Increased likelihood of being accepted: Lenders take interest rates into account, and since a small deposit equates to a higher mortgage, you are more likely to be eligible for the purchase.
Higher borrowing power: many people can take loans of up to 4.5 times their annual salary, so if you have a low salary and some down payment or savings is insufficient, you’ll need to come up with enough even just for the value of the property.
If you own more than you owe on your mortgage, it will be easier to transition to a new home or switch lenders when the time comes.
Mortgage rates are changing all the time, and the right deal for you might not be the one with the cheapest rate. Instead, you’ll need to factor in things such as upfront fees, early repayment charges, and minimum and maximum terms.
If you’re looking for a mortgage, then MortgagesRM – Doncaster Fee Free Mortgage Advisor is the place to go. To get an idea of what your monthly payments would be with different interest rates, use our mortgage repayment calculator.
If you can’t afford the repayments for a low-deposit mortgage, you will either need to save a bigger deposit (see below) or investigate schemes such as Help to Buy.
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