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Getting a mortgage with a low deposit

Getting a mortgage with a low deposit
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Saving for a deposit on a mortgage can seem like a huge task. With most lenders asking for at least 5% of the property price up front, it usually means having to save thousands of pounds before you can even start looking.

The amount of money you have to put down as a deposit can act as leverage to help you get a good mortgage deal, or even be accepted for a loan at all. However, if you’re determined to get your foot on the property ladder, there are ways to go about it without putting down a massive deposit.

Where to save

Where you keep your deposit will have an affect on how much you manage to save. Don’t keep your savings in your current account, as you may be tempted to dip into them. Instead, open a dedicated account where you can see your money mount up. The type of savings account you choose will depend on when you see yourself making a house purchase: easy access and regular accounts are great if you don’t need to save for too long, while cash ISAs and fixed rate bonds may offer better rates for the long-term.

Speak to a broker

Speaking to a mortgage broker will help you determine how much you need to save. A broker can also advise you on which lenders are willing to offer mortgages to buyers with low deposits. They’ll help you find a suitable mortgage and, if the mortgage ends up not being the right one for you, you’ll have better protection than you would have had you just researched on your own.

Help to buy

The government’s Help to Buy scheme is designed to help people buy property. To qualify you’ll need a 5% deposit and the home you have your eye on must cost £600,000 or less. The buyer is still responsible for the mortgage repayments but the government will offer lenders a guarantee on mortgage loans. This greatly reduces the risk for lenders and so they are usually more willing to offer good deals to people participating in the scheme.

Rent to buy

Rent to Buy schemes allow potential buyers to rent the home they wish to purchase at a reduced rate, with a view to buying it in the longer term. As the rents are subsidised, money is freed up to go towards a deposit. However, these schemes are few and far between, even if you are lucky enough to find one in the area you wish to buy, it is likely that it will already be oversubscribed.

Getting a mortgage with a low deposit

Shared ownership

Shared ownership arrangements can be a great option for first time buyers. You buy a percentage – usually between 25% and 75% – of the property and rent the rest at a reduced rate. Buyers can buy a larger percentage, or the full property, at a later date. Your local housing association or council will be able to tell you what homes are available for shared ownership.

Shared equity

Shared equity is similar to shared ownership, but rather than renting a percentage of the property, you get a loan to cover part of the deposit. You then pay a mortgage on the remaining amount. Legally, you own 100% of the property. The loan has to be repaid either 25 years later or when you sell your home, whichever comes first. As it is an equity loan, the amount you have to pay back depends on your property’s value at the time. For example, if you take out a 10% loan, you’ll have to pay back 10% of the property’s value at the time of repayment. Shared equity schemes are available through the government and are also offered on new-builds, through some property developers.

Help from family

If your parents or grandparents are eager to help you own your own home, there are some options available that won’t necessarily cost them money in the long run. Some mortgage lenders offer savings accounts that are tied to a mortgage. This means that parents can put 10% of the house price into a savings account, allowing their child to get a good mortgage with a 5% deposit. If mortgage payments are kept up, the savings are released, with interest, back to the parents once three years is up or 10% of the mortgage has been paid. Alternatively, parents can guarantee a mortgage with their own home, allowing a child to buy a property with even no deposit. However, bear in mind that if you don’t keep up with mortgage repayments, your family’s home may be repossessed.

 

 

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About Maria Brett

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About Maria Brett

Maria is a freelance writer with over 10 years' experience producing content for a variety of publications and websites. When not working or looking after her two gorgeous sons, she can usually be found playing flugelhorn in a brass band, helping out at her local hospital radio station, shouting at the television while watching Formula 1, at the cinema or plonked on the couch with a cold glass of wine.

Website: Maria Brett

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