100-125% mortgages are truly a thing of the past now. Following on from the infamous Credit Crunch, the country seems to be in a more stable, secure financial state and the property market is performing far better than it did before. With more rules and regulations in place (see Credit Crunch for more information on this), mortgage lenders now seem a lot more confident in offering 95% mortgages to their customers.
Of course, it doesn’t just have to be 95%, it can be as low as you might want this to be. The more savings you have free to put down as a deposit, the less you have to pay back overall, and you open yourself to the possibility of better interest rates.
Deposits essentially work as safety nets for the mortgage lenders. What this all boils down to, is that the lender needs to be confident you can make your monthly repayments. If you don’t do this, they’re at a financial loss and need to repossess and sell your property. By putting down a larger deposit, you are less risk to the lender because you are not borrowing as much from them. This also means that if the property market fluctuates and prices dip, they can afford to drop the price a little and still stay somewhat profitable.
We know that for many people, the process of saving up for a deposit to put towards a mortgage can be quite difficult, putting a roadblock in the way of trying to jump from renting to becoming a First-Time Buyer in Manchester. If you are already renting or have a family this can be even more so of an issue, as money you would like to put aside for saving often has to go on other essential needs.
Our dedicated and trusted mortgage advisors in Manchester regularly find themselves faced with many different questions about their deposits. Here we are going to look at these as best we can, with a hope of providing you with answers and a greater understanding of what it is you need to be successful, with a chance of also elevating you to a better deal with a lender.
Without a doubt, yes we definitely recommend this! The more you can put down for a deposit, the lower your rate of interest will be overall. One of the more attractive benefits of this is that it allows for potentially lower mortgage repayments per month, as you will also be borrowing less for the property you wish to buy over the course of your term.
Once again, putting down a higher deposit also means you are at a lower risk to the lender should things go wrong, so it really does work in your favour. Products are offered in bands of 5%, the most expensive of these being 95% mortgages.
It is not unheard of for this to be possible, though it does not happen often and is definitely not recommended. The use of a personal loan is considered as an additional credit commitment. Because of this, the lender will grant you a smaller mortgage than the one you might have previously found yourself with, had the deposit not been borrowed. The reason that the majority of lenders would rather this not be the case, is because at this point you would essentially be paying back 100% of the purchase price, with whatever deposit you had to cover the mortgage being paid back anyway.
Yes, almost all lenders are completely fine with Gifted Deposits from members of your family and sometimes, depending on the lender and the circumstance, from friends too. The one who is gifting must also be ready, willing and able to confirm that it is purely a gift and not to be paid back at any point. For anti-money laundering purposes, they may also need to provide proof of ID, as well as proof of their own funds.
Dubbed the “Bank of Mum & Dad” by many, gifted deposits are seen by many as a saving grace for those struggling to get onto the property ladder and the market would be a very different place without it.
For the sake of Anti-Money Laundering regulations, all applicants will need to evidence where exactly they got their funds, an audit trail if you will, by providing bank statements. Lenders like to take a look at how exactly any potential savings have been built up too. Recent large cash deposits in your account can be a big hurdle for lenders.
If you have done something like sell your car, you will need a receipt and proof that the amount it sold for matches the deposit of money made in your account. The longer you let these funds sit in your account, the easier this process gets as it’s not just a sudden and recent increase. Providing an audit trail for your deposit source can often be one of, if not the most difficult part of the application.
If you are selling a property you own to put money towards your deposit, then your proof of deposit in that case will be the Memorandum of Sale provided to you by the estate agent. These are documents that record and detail the buyers’ interest in your property and the terms of sale you have agreed on in order to hand over ownership.
If you happen to qualify for the government Help-to-Buy scheme (which is really useful for First-Time Buyers), you are still only required to have a minimum of a 5% deposit. With an additional boost of 20% from the government equity loan, this will bump your deposit up to 25%, allowing you to access a lower rate mortgage. It is very important that you remember to pay this back though. It is a loan, not a gift!
Depending on the situation you are in, no you don’t always need one. If the house has been discounted by the owner, then some lenders will accept the discount (which is basically the equity in the property) as deposit. For example, if the property is worth £100,000 and you have been offered it for £90,000, they will take the £10,000 discount off the property value as a deposit. This goes hand in hand with the Right-to-Buy Scheme from the local authority or private landlord.
Please be advised that the above information is for reference purposes only and is not to be viewed as personal financial or mortgage advice.