One of the first steps toward getting on the property ladder is saving up for a mortgage, this can be incredibly tough and take a long time depending on your circumstances. The current minimum deposit is 5% of the property’s value, thanks to the government backed 95% loan to value (LTV) scheme that is running until December 2022.
However, a deposit of 10% is the usual minimum and depending on circumstances, lenders may expect even more than this.
So how much can each percentage get you, and is it worth trying with a minimum or better to take the time to save up for more? Let’s find out…
What Else Matters?
Before we get on to each deposit, it’s handy to know what else works in tandem with the deposit. Your credit score, report and history are also very important things when it comes to getting approved for the mortgage.
Credit and Deposits
You will ideally need to have a decent credit score to be approved for a mortgage. Having a poor credit history could lead to your mortgage application being rejected. If this happens you may need to set up a debt management plan.
It may be possible to get a mortgage with bad credit, but these types of mortgages can have high interest rates.
During the uncertainty of the 2020 pandemic, lower deposits that were previously on offer disappeared. In response to this, the UK government introduced a 95% mortgage guarantee that encouraged lenders to offer a 5% deposit.
This scheme was introduced on the 19th of April 2021 and is set to run until December 2022. Closer to this end date, a review will take place to assess whether the scheme needs to be extended or not.
The scheme is intended to help first time buyers, as people are commonly stuck renting and high rent prices are making it difficult for people to save up and afford a deposit.
Anything less than 5% will unfortunately not be considered, though with a scheme like shared ownership, where you don’t own a property entirely but buy a percentage, you will only have to pay a 5% deposit on the share you buy – rather than the entire value of the property.
To get a 5% deposit, you will need to have a good credit score, as there won’t be specialist bad credit lenders that offer the 95% mortgage scheme.
Whilst the 5% deposit is a great help for people who would otherwise not be able to afford a deposit at all, there are downsides; The smaller your deposit, the higher your monthly payments will be, and with the interest on top of that, it could lead to the property eventually costing you more than it was originally worth.
If you’re patient and can keep saving for longer, try to get a bigger deposit going (or look for a cheaper property).
10% was the previous minimum, and still regarded as low, so while it’s easier than a 5% deposit, it’s still not easy.
You’ll also have to have a good credit score, and can’t have anything like missed mortgage payments, defaults (closed accounts due to missed payments) or County Court Judgements (CCJ) on your record from within at least the last 3 years. Though these things can stay on your record for 6 or more years.
Having at least 15% for a deposit is recommended if you do have any adverse credit history, but it will have to be mild or resolved over 3 years ago. You may still have to go to a specialist lender to get a mortgage with 15% and credit issues.
Lender’s interest rates will start to drop with a deposit of this amount. You’ll still need to make sure that any bad credit is not too severe though.
25% – 30% Deposit
If your credit score with high street lenders is still an issue, then there will be lots of specialist lenders that can help with this level of deposit. As the deposit goes up, the interest rate will go down.
This will give you a chance with high street lenders if you have adverse credit.
No matter what your deposit is, you can get help and advice by using a mortgage advisor. So contact one today and they can get you started.