As a first time buyer, there are a few steps to take to determine how much deposit you’ll need to save up for a mortgage.
Step 1: Check Your Affordability
Saving up for a deposit is the first step to purchasing your first home.
But how much do you actually need to buy your dream home?
According to Statistica, the average first time buyer deposit size in the UK in 2022 was £62,470.
The next step is to find out how much you can borrow based on mortgage lenders’ affordability rules, which can vary from lender to lender.
Many lenders have their own affordability calculators which consider your income and outgoings as well as other factors.
This is why it’s important to use accurate figures to ensure you are including the right income and whether the lender will use it to determine how much you can borrow.
Some are more generous than others, so it’s worth checking this with an independent mortgage broker who can access the whole market for you.
Step 2: Work Out the Loan to Value
Your deposit will be determined by the average affordable loan amount minus the purchase price of your dream home.
This is known as a “loan to value” and the lower this is, the more competitive the product will be.
In other words, the more deposit you can put down, the better the mortgage interest rate that will be available to you, potentially saving you £1000’s over the mortgage term.
So for example, if you are buying a property at £200,000, and you can borrow £150,000 the loan to value would be 75% meaning you would need to put down a 25% deposit or £50,00
Step 3: Check Your Credit Score
Most lenders prefer to see evidence that potential applicants can save for a deposit, as it gives them reassurance that the mortgage repayments will be made on time.
This is especially true for lower deposits at 5% or 10%.
You’ll also need a higher credit score and a clean credit history to be eligible for a mortgage with a low deposit. This is because the lower the deposit, the higher the risk for the lender.
It’s worth checking your credit score and history before you apply for a mortgage.
Step 4: Contact an Independent Mortgage Adviser
The minimum deposit required with most lenders is currently 5% of the house price, although there are one or two lenders that will lend up to 100% of the property price.
However, these products are few and far between and will restrict your choice of products and lenders.
Plus, the lending criteria tend to be more complex, so speaking to a mortgage adviser is paramount for these types of products.
To find out how much you can borrow and what deposit is needed to buy your dream home, book a free consultation with me, and let’s get you mortgage ready.
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