Buying a home is a big step, whether you are looking to get on the property ladder or move up it. As with any property purchase, the size of the deposit you can put down can affect your options. While it’s certainly not impossible to get a mortgage with a low deposit, the bigger deposit you can save, the better as it will help you to access a wider range of mortgages, with better rates.
There are several schemes and different mortgage types that can help you buy your first – or next home – including Shared Ownership, Help to Buy and guarantor mortgages, but if you are looking to buy a home and don’t have a big deposit saved up, it narrows your options. However, you can still get a mortgage with a low deposit if you know where to look. Working with an expert mortgage broker, who understands the market and can connect you with the right lenders and deals, is essential.
What is a mortgage deposit?
A deposit is the amount of money you save to secure the property you want to buy. They are worked out as a percentage of the property’s overall value. You pay the deposit to the seller upfront and get a mortgage to cover the rest.
So, if you are buying a home worth £150,000 and have a 15% deposit, you’ll pay £22,500 upfront and would need a mortgage of £127,500 for the rest. That 85% is known as the mortgage’s Loan to Value (LTV) because it is the amount of mortgage you need to cover the purchase once you’ve paid the deposit. Most lenders offer mortgages with an LTV of 85% or lower.
Some lenders offer mortgages with a higher LTV of 90% or more. With a 90% LTV mortgage, you would need a deposit of 10%.
A mortgage with an LTV of 100% requires no deposit, but these can be extremely hard to find. However, if you have parents or other family members who are willing to out their own home up as security against your mortgage, you might be able to get what’s known as a Guarantor Mortgage, which doesn’t require a deposit.
How much deposit do I need?
There are no hard and fast rules when it comes to working out how much deposit you need, but there are a few things to consider. Firstly, if you can put down a bigger deposit, you may be able to either apply for a larger mortgage amount or get access to more competitive rates of interest.
If you have a low deposit, the range of mortgages and interest rates available to you will narrow. However, your deposit isn’t the only thing you need to take into consideration when it comes to buying a house. Legal and arrangement fees, moving and living costs and the amount of Stamp Duty you may be required to pay all need to be factored in when it comes to deciding how much you can afford. It’s important to remember that if you don’t keep up with your mortgage repayments, your property may be at risk of repossession.
So, while you can get a deposit with a low mortgage by borrowing more, you should be sure that you can afford the payments over the long term. If you are looking to buy a home and want to understand all the ins and outs before you take the plunge, including what mortgages may be available to you if you have a low deposit, an expert mortgage broker can help. They can connect you with the best lenders and mortgages that match your circumstances and help you understand how deposits and LTVs work and how they might affect you.
Whether you’re a first-time buyer or ready to take your next step on the property ladder, the size of the deposit you have can have a big impact on your purchase, so you need to understand all your options before you take the plunge. My Mortgage Pro can connect you with an expert mortgage broker who can help you find the best solution. To find out more, fill out the form below to request a call and we’ll be in touch.