At the very least you will need a 5% deposit, unless you have a guarantor backing you. However, the general principle is that the larger the deposit, the better your mortgage deal with a lower interest rate and a smaller mortgage which will hopefully mean a shorter time frame for payment.
For example, if you have saved a 5% deposit, and that is paid on a property purchase price of £200,000, then you will pay £10,000 and you will therefore borrow £190,000. Your mortgage repayments will be based on this amount.
- It has been found that the average first time buyer deposit is around 17%. Buyers are paying more deposit in order to reap the benefits of:
- Better mortgage deals-larger deposits mean that you are considered less of a risk
- Cheaper mortgage re-payments –the smaller the loan, the cheaper the monthly re-payments
- Being considered less of a risk by lenders as you own much more of the property from the outset
- More likely to pass affordability checks – all lenders will want to make an assessment of your income and outgoings to see if you are able to afford the mortgage. Putting down a small mortgage may mean that you are more likely to fail the checks.
Yet understandably, many do struggle to put down higher deposits and many can only afford to put down 5%. You, as the buyer will also need to be realistic with what you can afford taking into consideration all of the other fees that you will have to pay-For more information please see The costs of buying a property guide. The mortgage lender will want to see that you are able to make the repayments. If you cannot afford repayments on a 95% mortgage, then you may have to pause and spend more time saving for a bigger deposit.
For those struggling with small deposits, there are many options available to assist them. There is the Government Help to Buy scheme. You may also consider assistance from parents or friends or even buying a property with a friend!