Mortgage down payment or deposit is usually the first thing you think about when considering buying a house. Money up-front that you may or may not have. But do first time buyers in the UK need a mortgage down payment? The black and white answer is no. But neither do second or third time buyers.
In today’s market, there is no set amount that you have to set aside as a deposit. Did you know that there are even lenders currently providing 100% mortgages with £0 deposit required? But all that glitters isn’t gold. These 100% mortgages were popular in Greece over the last couple of decades if that gives you anything to go by. The fine print in 100% mortgage could make you go blind, so we combed over it to give you the must-know facts.
Are £0 deposit mortgages an option for first time buyers?
First time buyers with no savings (or even those who have managed to put some money away but prefer to keep it for things like decoration and furniture or perhaps food) have the option to look into 100% mortgages.
If you want a 100% mortgage, lenders will ask that you: -
1.be over 21 and be a first time buyer; and
2.have a relative who is willing to mortgage their own property for your mortgage; or
3.have a relative who can provide a deposit for you (which they will get back after a few years once you have paid off a certain amount of the mortgage); or
4.buy through and share ownership with the Housing Association; and
5.have some money set aside anyway. Even if you don’t provide a down payment, there are still a bunch of fees that come along with buying a house such as product fees, admin fees, completion fees, booking fees, variable valuation fees, stamp duty, local authority service, surveys, solicitors’ fees, home insurance, not to mention the cost of actually moving. These can easily range anywhere between £4,000-£15,000.
If this seems like a stretch and you don’t have any rich willing relatives lying around, have a look at the minimal down payment mortgage options that are available.
How much down payment do first time buyers need?
Whether you are a first time buyer or a second homer, it's up to you how much deposit you want to or are able to provide. If you’re going the down payment route, 5% is usually as low as they go without a relative footing some kind of responsibility and insurance is a must for all low down payment mortgages. Mortgages of 90% and 95% are options worth looking into if you haven’t managed to save up a hefty deposit. Although being a first time buyer doesn’t get you any special discounts in relation to the down payment, it does however get you better mortgage rates.
It’s worth noting that the chances of you getting lucky with the lenders is majorly dependant on the amount of your deposit; the higher the deposit, the better your chances. 10%-20% is considered a fair deposit nowadays. Deposits of 40% or more provide the best mortgage deals although that kind of money is not usually what we’d have lying around for a rainy day. For example, a house that costs £200k would need a deposit of £80k. Not a trip to Aldi.
The benefits of providing a good mortgage down payment
1.Cheaper mortgage deals, i.e. as a first time buyer, you could qualify for a mortgage rate as low as 1.48% interest whereas 100% mortgages start at 3.4% (read the fine print thoroughly);
2.More chances of getting a mortgage; having some dough set aside shows lenders that you’re good with money.
3.Paying off the mortgage sooner; no one wants a seemingly never-ending loan on their head.
Help for those with little deposits
Don’t get disheartened if any of the above doesn’t help you in your current situation. There are a few other things you can consider.
1. Buying a property with shared ownership
Shared ownershipconsists of buying a share of a property from the housing association and then paying them rent for the remaining percentage of the house which you do not own. You have the option to buy more and more of the house as time goes by.
2. Buying a property with shared equity
Shared equity is a scheme whereby you are given a loan for your deposit which helps out in getting the mortgage; the bigger the deposit, the better the mortgage deal.
3. Buying a property using Help to Buy
This is a government funded shared equity scheme.You'll need to save a 5% deposit and the government will loan you the remaining 20% for a nice 25% down payment which should ensure you get a good mortgage deal. There is no interest for the first 5 years. Year 6 sees interest at 1.75 per cent, which will rise annually with inflation thereafter.
4. First time buyer ISA
The Help to Buy ISA is fantastic option to top up your deposit. The government basically give you £50 for every £200 you save for a house deposit. If you save £12,000, you'll get an extra £3,000 (which is the maximum amount you can get) on top of that from the Help to Buy ISA scheme and this can be used on any property of up to £450,000 (£250,000 if not in London). Additionally, if you are buying with a partner and none of you are already home owners, you can BOTH get an ISA, doubling the total deposit for the house.
There are of course requirements for any of the above and not just anyone can qualify so make sure you're well informed so you can make the best decision for you.
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This article originally appeared on The Debrief.