The era of 100% and 125% mortgages are now long gone. Now that the credit crunch is but a distant memory, lenders are now becoming more confident with their lending, offering bigger bands of mortgages such as 95%. By using these bigger deals, lenders are able to maintain the comfort of knowing you have something to lose, should your situation change and you are unable to maintain monthly repayments.
It is notably quite difficult to save up for a deposit for many people and thus can be a barrier for entering the property market. When customers get in touch, we often find that we receive a large amount questions about deposits. Below we have answered some of them for you.
The more deposit you put down, the lower the interest rate that the lender might be able to offer you. This is because in the eyes of the lender, you pose less of a risk if they lend to you. So the bigger your deposit, the less expensive band you receive. An example of this, is if you put down a 5% deposit, you’ll be offered a 95% band.
Under the right circumstances, it can be possible, though it’s limited. The lender will see the monthly payment as an additional credit commitment and therefore grant you a smaller mortgage, rather than the bigger one you might have received had you not taken out a loan. Lenders do not look too kindly on this.
Gifted deposits are common and are widely accepted in the mortgage industry. When going through the gifted deposit route the person gifting must confirm that this doesn’t need to be paid back and is purely a gift.
To do this you will need to present forms of ID and proof of funds for the purpose of anti-money laundering. Gifted Deposits have been a godsend for the mortgage industry and the market would look very different without them.
For the sake of anti-money laundering, all applicants will need to provide bank statements to provide proof of how your funds have been built up over time. For larger deposits, you will need to provide the lender with detailed, documented evidence.
Let’s say you have sold a car. Then the amount you have sold it for needs to match the receipt you provide and the amount that is shown in your bank account. Depositing large amounts of cash can delay the application as the audit trail can be difficult for the lender to navigate. The longer the funds have been in your account, the easier it may all be.
If you are selling a property, then the Memorandum of Sale provided by the estate agent is your proof of funds.
It’s still a 5% minimum if you qualify for the government’s Help to Buy scheme. This can then be further topped up to 25% via the equity loan, to help you obtain a lower rate mortgage. You must remember though that if you opt for this, then the 20% deposit provided by the Government is a loan, not a gift and will need completely paying back.
No, not always. If it is a genuine discounted purchase (say the house is worth £100,000 and you have been offered it for £90,000), then some lenders will accept the discount as your deposit. This can be very helpful if you have the Right to Buy from the local authority or other social landlord.