Its the question on many a buyers lips… “how much deposit do i need to buy a house?”
The Help-to-Buy scheme helps by in effect increasing the amount of deposit you can have available as it offers an interest free loan to help buy a property up to £600,000 in value. It also offers a support scheme to mortgage lenders to encourage them to take on customers with smaller deposits.
The interest free loan is worth up to 20% of the property value if the buyer matches it with at least 5%. After 5 years, 1.75% interest (rising each year) is added to the loan and the loan must be paid back in full when the house is sold at the equivalent percentage rate, so if the loan was worth 20% then 20% of the sale price achieved must be paid back (plus the interest which has been paid on the loan).
The scheme also offers banks and building societies a guarantee against losses on up to 20 per cent of a property’s value, if a home buyer puts down at least a 5 per cent deposit. The aim is to drag down mortgage rates on 5 per cent and 10 per cent mortgages so they are more in line with the better deals offered to those with bigger deposits.
When embarking on the property ladder the single most important thing to get under control is your finances.The better your credit rating and the bigger your deposit, the better mortgage deal you will be likely to obtain. Lenders will want to assess your affordability and will look at your outgoings to see that you can afford the mortgage repayments now and if interest rates rise and you will have to supply documentary evidence.
You will also have to factor in the fees associated with the transaction which could run into thousands; this can use up cash that could be used for the deposit.
There are lots of options out there when it comes to selecting a mortgage and the bigger the deposit you have the better access to the deals out there. You don’t have to take the recommendations of a broker but they can be useful as they have access to a wide range of deals (unless they are tied in to one particular mortgage lender) and a good knowledge of the market.
Any agreement you get in principle does not constitute an offer, to do that you need to have it in writing. Going from lender to lender getting agreements in principle will simply cause an adverse footprint on your credit score.
Government assistance has meant it is easier to get a mortgage with 15%, 10% or even a 5% deposit but saving up more for the deposit will enable you to obtain a better rate, so it may be worth delaying so that you can do so.
Lastly, don’t just take out your mortgage lender’s insurance without shopping around as it could mean you are paying out more than you have to. You will have to have insurance in place once you exchange contracts as the property will become your responsibility at that point. We know of one house owner who calculated that their loyalty to a particular company had cost them £10,000 more than if they had shopped around over 32 years for their buildings and contents cover, so you need to keep on your toes.
There’s quite a lot of work involved and once you purchase a property it doesn’t stop there as you will constantly be factoring in the costs of maintenance and associated bills over the years, but find an affordable property that you can do up, invest in and love and you’ll be able to have a most enjoyable lifestyle and a good investment to boot.
Working with Zevizo Properties we can help you find the best deals around and, most importantly, we can help you find the best property for you at an affordable price using our mortgage calculators and access to industry experts, we’ve got it covered!