Buying a property like a house is a long-term financial investment and commitment. Most often, buyers take mortgages to support their purchase decision. Based on the financial position of individuals, various schemes and options are available to avail of a mortgage.
To be approved for a mortgage, you must make an upfront payment known as a deposit. This is adjusted against the value of your property. The higher your deposit amount, the lesser you have to borrow; hence, your monthly payments would be lesser.
How to determine the deposit required for a mortgage?
The deposit amount is determined based on the cost of the property. The lender will assess your deposit based on how much you are eligible to borrow. Most often, 10% of the property value is required as a deposit. In some instances, it can be reduced to 5%.
It is better to opt for a higher deposit if that is possible for you –
– It reduces the Loan to Value, meaning you borrow less, and your monthly payments would be lower.
– It speaks as credibility for you with the mortgage lender and can help to get better deals and low-interest rates.
If you are a first-time buyer, you will have to front 15% of the property cost as the deposit. If your deposit is higher, the interest rate and monthly payment amount would be lower.
Does the deposit amount vary for certain categories?
If your record has bad credit, some lenders may ask for a bigger deposit. But there are some lenders who are willing to overlook bad credit scores and lend money with conditions. They consider certain exceptions and tailor-make mortgage schemes to help those whose financial history may be complicated.
If you are self-employed, that’s a cause of concern for moneylenders as they feel they may not be able to verify your income. They would ask for higher deposit amounts.
A greater deposit of at least 25% may be required if you are purchasing a second home. And you may be required to pay a higher rate of interest. The mortgage process is the same but with stricter criteria, and you would have to prove that you could afford both mortgages.
Is a no-deposit mortgage available?
Currently, the market does not support a no-deposit mortgage scheme. There may be a few specialist lenders who offer them sometimes. But you would have to show a spotless credit history. And the market would have to be very strong and stable for lenders to be confident in taking this step.
You could try for a guarantor mortgage if you can’t pay the deposit. Someone else has to make your payments legally, and his or her home would be secured for your mortgage. They would have to pay outstanding costs if the bank takes possession of your house and sells it.
The government has a Help to Buy scheme wherein first-time buyers can avail of a 5% deposit-only option. In addition, the government gives an equity loan to help you get started on the property ladder.