If your buying a property on a tight budget, Deposit is often the main stumbling block… but it may be less than you think! If you have a low deposit, read on to find out more.
The amount of deposit you need for a mortgage will be dependent on the type of mortgage you are applying for. The deposit required by the lender will also be impacted by your credit score, credit history and your other personal circumstances. The lender will express the desired deposit as a percentage (%).
The minimum deposit that lenders accept is 5%. This means you need to have 5% of the property price.
House Value of £100,000
£100,000 X 5% = £5,000 deposit required.
With any application, you still need to pass the lenders affordability checks, even if you can raise the deposit. Using the example above, you need to be able to afford the remaining mortgage needed. In this example – £95,000 because your deposit doesn’t guarantee you will be accepted for the remaining amount.
Deposits increase in 5% increments, so the next levels of deposit would be 10%, 15%, 20% etc. Ultimately, the more deposit you have, the greater the chance of securing a lower interest rate. Of course, this is dependent on what is available in the market at the time of applying and your own credit score. Sometimes, lenders will insist on a larger deposit for scenarios such as low or poor credit rating.
If you only have a 5% deposit and are still struggling for a mortgage in your price range, there are also Government backed schemes to consider (depending on affordability and your maximum borrowing from the bank). These include;
- Help To Buy (Shared Equity and Shared Ownership). The Shared Equity scheme can increase the amount of deposit you have and can make you eligible for a variety of mortgages that may be right for you. Shared Ownership may open more opportunities to get onto the property ladder.
- There are other schemes available, if you don’t have a deposit personally. There are innovative solutions on the market for parent support mortgages, if your parents are able to provide a 10% deposit. Reach out to us if you are looking to explore this option.
Buy to Let
Most people think they need a 25% deposit for a buy to let mortgage. But, with the correct specialist advice, it may be possible with a lower deposit such as 15% – 20% in the right circumstances. Banks are still eager to lend to buy to let investors despite the current economic climate.
If you are looking to invest in an HMO (House of Multiple Occupants), lenders typically ask for larger deposits. But, in some cases it may be as low as 15% – depending on the profile, type of applicant and the right circumstances.
Buy to Let properties are assessed differently to a Residential mortgage – Read our blog on Buy to Lets Explained by clicking here.
When buying a residential property, the minimum deposit you need is 5% but you need to be able to afford the remaining 95% mortgage as per the lenders criteria.
With regards to buy to lets properties, you will typically need a 25% deposit but it may be possible with 15%-20% but the choice of lenders will be limited. In addition, with smaller deposits it will also be dependent on the rental income received as to whether it supports the remaining 80% – 85% buy to let mortgage borrowing.
For further guidance on buying a property with a tight budget, feel free to contact us at Flex Financial and we will be more than happy to help or answer any questions you have.