The amount of deposit you will be required to have in order to purchase a property is something that will be entirely dependant on your personal and financial circumstances, as well as looking at what you are trying to do. In this article we will take a look at how much deposit you may need.
The previous era of 100% and 125% mortgages are long gone, as is the infamous credit crunch. The Coronavirus did see certain deals pulled back, but nowadays we are seeing more and more lenders feeling confident about offering 95% mortgages to homebuyers.
Based on the history of mortgages and what went wrong, having to prove to a mortgage lender that you are a responsible borrower and have the means to maintain your monthly payments. Lenders need to have a confidence that they have invested correctly. This factors in with your deposit, as it also show that you have something to lose too.
The initial saving for a deposit can often be the difficult part for many, especially first-time buyers in Nottingham who have only been renting up until this point.
It can also be seen as one of the biggest obstacles in the property market and there are certain factors involved which could make the whole process seem even more daunting to someone who hasn’t experienced it before.
As an open & honest mortgage broker in Nottingham, we are always hearing questions from customers regarding deposit. In fact, we can safely say that it’s one of the most commonly discussed topics from first-time buyers. As such, we have compiled a list of the usual suspects and the answers to these.
In years gone by, 100% mortgages were on hand to most customers. There were even a selection of companies who were offering 125% loan to value mortgages. In hindsight, this sounds crazy, as it means if you were buying a property valued at £100,000, the mortgage lender would be willing to lend you up to £125,000.
Lenders require their customers to put down a deposit to reduce their risk of lending such a large amount of money. If they lend you 100% of the purchase price and for one reason or another you happen to fall into arrears, the lender would need to repossess the property in question and attempt to sell it.
If property prices dip even by a small amount, they have now not only made any profit, but have in fact lost money on this venture.
Also, there tends to be a school of thought that if you haven’t invested some money into a property, whether it be from your own savings or a gifted deposit, you might lack attachment and find it easy to “walk away” if you happened to struggle with your monthly repayments.
There is also the argument that if you are not in a position to save up at the very least, a minimum of 5% of the purchase price of a house for a deposit, then you likely aren’t ready for such a commitment at this current moment in time.
Putting down more deposit is generally a great thing to do!
If you are putting down a higher amount than the average home buyer, the lender may actually be willing to offer you a deal with lower interest rates than usual, as you will be borrowing less and therefore less of a risk.
For example; if you are looking to buy a £100,000 home and have only saved 5% deposit, you’re only able to access 95% mortgages and would be borrowing £95,000. However, if you were able to save a 20% deposit on that same property, you would be open to 80% deals and therefore only borrowing £80,000, which a lender would much prefer if an option.
It is important to know that products are offered in bands of 5% with 95% of Mortgages being the most expensive.
In some cases, very specific ones, using a personal loan for a deposit may be acceptable, though this depends on the lender.
It’s not widely accepted, because a mortgage lender will consider it as a monthly mortgage payment and therefore treat it is technically is, as an additional credit commitment. Because of this, you would be granted a smaller mortgage as opposed to the types of mortgage deals available to those who outright saved for the deposits themselves.
The reason why mortgage lenders don’t like to get involved with these circumstances, is because you are essentially borrowing 100% of the purchase price, which if we go back to mortgage history, is what caused problems in the first place.
The majority of mortgage lenders will accept gifted deposits as a source of your deposit towards a property.
Gifted deposits can pretty much come from anyone, though it is generally family and depending on criteria, friends too. There are certain obligations that the ‘donor’ will have to comply with, such as being willing to confirm it is a gift and not something you’re required to pay back.
They must also provide ID and proof of funds to keep in line with the lenders’ to anti-money laundering regulations.
As it pertains to modern society, if it weren’t for ever-rising popularity of gifted deposits, known by many as the ‘Bank Of Mum and Dad’, we believe that the property market landscape would look completely different to how we’ve come to know it.
Much like when using a gifted deposit, using your own savings to fund a deposit will require certain forms of ID and various documents in order to evidence how these funds came to be over time.
Lenders like to see how you have been saving over time. If it looks to the lender like you have had any large deposits moved into your bank account recently, then you will need to provide documentary evidence to show where it came from.
For example, if you have recently sold a car then you will need to provide the receipt and the amount you sold the asset for. The number present on this receipt should match that of the amount in your account.
Large cash deposits can sometimes prove to be problematic, especially when it comes to audit trails. When it comes to your application, audit trails can often be one of the hardest parts. The longer the funds have been in your account then the easier everything should be.
If you are selling a property, then the Memorandum of Sale provided by the Estate Agent will be sufficient proof.
If you happen to qualify for the government’s Help to Buy Scheme, then the minimum deposit required will still be 5%. The government will then loan you an amount of around 20%, which will be put towards your deposit, totalling 25% overall.
You must always remember though, that unlike when dealing with a gifted deposit, the government Help to Buy Equity Loan Scheme is just that, a loan. Eventually, that 20% needs to be paid back.
Not always. If it is a genuine discounted purchase, let’s say that the house is worth £100,000 and you have been offered it for £90,000, then some mortgage lenders will accept this discount as your deposit. This also can apply if you have access to the Right to Buy Scheme when purchasing from the local authority, such as council or housing association.
It’s completely your choice to go to a lender directly; some are a little more adept and can manage the process themselves. When it comes to this you can either go and visit a branch or do it online.
Whilst this sounds like the steps are easy enough, there are still many reasons as to why a person should use a mortgage broker in Nottingham. Our mortgage advisors in Nottingham have taken time out to put together a few pros and cons to help you decide between the two choices you’re faced with.
Some of the benefits of homeowners and home buyers going direct to their bank or building society means that you’ll be able to save some finances. In the past, you may have found that the bank manager knew your finances incredibly well, but that all changed when credit scoring came into place.
Other potential advantages are that you’ll find some lenders may offer exclusive products for your mortgage, ones that are only be able to be obtained from straight to the lender themselves. They do this so that it appeals to both customers and brokers alike, but these exclusive offers can be subject to change and can sometimes when they stop being available with the lender, can still be obtained by going to a mortgage broker in Nottingham instead.
From 2014 onwards, mortgage lenders were no longer allowed to sell mortgages on a non-advised basis, on a whim with any customer interaction. Up until that point, some applicants were under the impression that they were receiving advice when in fact they weren’t speaking with a qualified advisor. This meant that they had opted out unintentionally from consumer protection that they would’ve received by speaking with the right person.
Due to these changes, lenders had to change the way they ran their business, meaning that it could take up to a month to speak with an advisor. If you have had your offer accepted on a house, this is of course not a good thing, as obviously you really want it. Because of this, mortgage brokers became a more popular option. As a part of our mortgage advice service, we aim to give you same-day mortgage service. When you Get in Touch, we try and connect you with a dedicated mortgage advisor in Nottingham at a time that best suits you.
Back in the ’90s, it was a lot more challenging to compare mortgage deals. Through the advancement of technology, finding a competitive mortgage is now a lot easier, as everything is basically online now. The issue people are faced with, is not knowing whether you meet mortgage criteria and it’s hard to find products that are tailored to your individual circumstances. Wherever you’re searching, it is important to bear in mind that the deals with the lowest tend to carry high arrangement fees.
Another key factor that could determine where you go, is affordability. It doesn’t matter how good a deal might look to be, if you aren’t able to borrow the amount of money you need. Because of this and because of how serious of a financial commitment this type of process is, many prefer a mortgage broker to help them along the way.
As it can be seen with many lenders nowadays, there are various different factors that can make a mortgage application so much more complicated. For example, these may be:
As the years have passed, lenders have attempted to differentiate themselves from their competition by ways such as offering better deals than others. The main way they do this is through their differences in lending criteria. For example, some lend more towards those who are Self-Employed in Nottingham, whereas some might take a more relaxed to blips on your credit report.
Our mortgage advisors in Nottingham understand that your situation will be unique to you. Through our experience as an open & honest mortgage broker in Nottingham, we have seen various unique and complex scenarios in the past. It’s our hope that we will be able to draw from that experience in order to recommend a more suitable mortgage for you at the lowest rate possible.
However, it’s not just about the mortgage. Even if the application itself is straightforward, we’ve noticed our clients rely on us for much more, we strive further than just sorting your mortgage deal. Our mortgage advisors in Nottingham will be able to recommend other professional services such as Solicitors and the array of different surveys and protection available to you as a home buyer.
It has already been covered previously, but mortgage brokers in Nottingham tend to be far more responsive than high street mortgage lenders. It is not uncommon for our dedicated and hard working advisors to provide out of hours (beyond the standard 9-5 shift) and weekend appointments. They are also able to respond to clients’ emails during this time to offer a more responsive service as opposed to restricted working hours.
One factor which is often overlooked by many as to why a mortgage broker in Nottingham is a highly preferred option to a lot of home buyers and homeowners alike, is that a person may simply prefer to let someone else handle the full transaction and take the stress out of the situation. Professional applicants, such as those who run a Buy-to-Let in Nottingham, have seen this to be very beneficial as they have their own customers to handle, so find it to be much easier having a helping hand do the work for them.
If you are in need of expert mortgage advice in Nottingham, whether you’re a first-time homebuyer, moving house, looking to remortgage, are a buy-to-let landlord or even something else that hasn’t been touched upon, please do Get in Touch. Our team of mortgage advisors will do their very best to bring you one step closer to mortgage success, keeping the process as clear and simple as they possibly can.
For a First Time Buyer in Nottingham, whilst the days of 100% mortgages are mostly now a distant memory, it can be possible in certain circumstances to buy a property without investing any of your own money. Buying a property under a Right to Buy scheme is a good of example of how this is possible, as is buying from a family member or Landlord when they are offering you a discount from the value of the property on the open market.
In terms of gifted deposits, here are the answers to a few commonly asked questions:
The most popular choices amongst First Time Buyers in Nottingham are usually family members, and it tends to be “Bank of Mum and Dad” that gifts the deposit to the applicant in question. The gift must be evidenced by way of bank statements from the donor, as well as their ID. There are some lenders that will accept a gifted deposit from a close family friend, which could open up more options for you should you need them.
If the family member or friend helping you out is over the age of 55, they may look to take out Equity Release in Nottingham, as a means of providing you with a Gifted Deposit.
In almost every circumstance involving a gifted deposit, it needs to be a gift, with a letter (which we can help prepare) signed by the donor to confirm the funds are non-refundable and they will not put a “charge” on the property you are purchasing. As always though, there can be exceptions and we know of at least one lender that will accept a loan rather than a gift.
Be careful though, as taking out a personal loan just before applying for a mortgage will probably have a very negative effect on your credit score which could lead to a future mortgage application being rejected. The Lender will also take the monthly payments for the loan into account when they are calculating how much they will possibly lend you.
When purchasing a property, there is no minimum or maximum, however there are some lenders out there who will want at least 5% of the deposit to be from your own personal income. Generally speaking, the more deposit you and/or the donor are able to put down for a property you are interested in, the better deal you are likely to get and end up saving yourself money per month on your monthly repayments.
In contemporary settings, the general public are now paying more attention to their credit rating than ever before which makes them reconsider their financial decisions. Consumer awareness of credit scoring appears to be higher than ever before and the majority of people who get in touch with our team appear to have already reviewed their credit report online to get further ahead in the mortgage process.
There are multiple credit reference agencies that are available for a person to utilise. The most common are companies such as Experian or Equifax but we recommend new clients towards Check My File for a 30-day free trial, following this it comes to £14.99 a month but can be cancelled any time. This report offers our clients a collation of information produced in an understandable colour-coded report.
Clients usually ask if our First-Time Buyer Mortgage Advisors in Nottingham will be doing a credit search on them because they are aware that too many searches can have a downward effect on their credit score. Lenders always run credit checks but we make sure our Mortgage Advisors seek out a client’s permission before doing these.
Credit searches from banks come in two forms; hard searches and soft ones.
A hard credit search is one where it will offer a more in-depth look into your credit report, if any financial institution carrying out these should prioritise seeking your permission to do this before anything else. The benefit of a ‘hard’ search is that because the lender is looking into your situation closely, if you pass the credit score than your chances of your application being successful will improve drastically. The only thing at that stage that can go wrong is, if, for any reason, you cannot provide evidentiary support of satisfactory documentation to back up the information in which you have disclosed or it turns out that you have provided false details.
The flipside of the benefits is that the hard search leaves a ‘footprint’ on your credit file so that anyone who takes a look at your report can see that it has been carried out. This isn’t necessarily a bad thing but if for example, you have multiple searches included in your credit file in a short period of time then it could be perceived as you are applying for a vast amount of credit at the same time. The search will not state as to whether your application was successful or not but Lenders will sometimes wrongfully assume that you are being declined with the mind frame of “Why else would you go to Lender number 2 unless Lender number 1 had said no?”.
The odd hard footprint on your record is no big deal so this doesn’t give reason to worry too much about it; just take precaution in having too many.
The other form – a soft credit search – is a ‘lighter’ search which looks at your financial situation and would be the type of search that would be carried out on price comparison websites to let you know what may be available to you, or it could be used to verify your identity. Some Mortgage Lenders carry out soft searches and nowadays, even more lenders seem to be changing to this type of search. Whilst less information is offered to who is carrying out a soft search on you as opposed to what they would receive if it was a Hard search, if you obtain an Agreement in Principle from one of these Lenders, it’s usually still an extremely strong indication that your full application will be accepted.
One of the most beneficial things about soft searches is that whilst you will be able to see soft searches that have been carried out on you if you check your credit file (people are usually surprised by how many have been carried out on them) these searches are not visible to other Financial institutions like Banks. This means you can apply for an Agreement in Principle for a mortgage without it damaging your credit score irrespective of whether it is successful or not.
If you are going through the thought process of putting forward an offer on a property, our First Time Buyer Mortgage Advisors in Nottingham would recommend having a mortgage agreement in principle in place prior to contacting the Estate Agent and whilst gaining this, you will also have the option to obtain Specialist Mortgage Advice in Nottingham. You want to be able to give yourself the best possible chance of securing the property you want at the lowest possible price so if you present yourselves as having your finances in a good place then you are definitely giving yourself the upper hand in the situation. Being in possession of an Agreement in Principle could also mean that the Agent is put off trying to ‘cross-sell’ their own in-house mortgage services to you.
At the start of the Coronavirus pandemic in March 2020, the Government promised that all borrowers would be able to access a three-month mortgage payment holiday if they needed it. Most lenders followed the Government’s guidelines and did their best to help their borrowers during these hard few months.
We have thought carefully about the possibilities of what could happen to your mortgage over the next few months and are working very closely with all of our lenders to ensure that if anything changes, we can inform you right away and recommend the best option for you to take so that you still feel secure and happy with your mortgage.
A Mortgage Payment Holiday is an agreement settled between you and your bank, building society, or mortgage lender to put off your monthly mortgage payments for a certain period, in this case, 3-months.
However, the break-in your mortgage payments does not mean you never have to pay the amount back. The interest you defer is re-added onto the loan amount whilst your capital balance will not decrease. Simply put, the mortgage amount will increase a slight amount, and you will continue to attract interest in the overall amount.
When it comes to being ready and able to pay your mortgage payments again, your monthly payments could then get recalculated at a slightly higher level or your mortgage term increased. Most lenders would prefer the first option as with some borrowers, and it could take them over retirement age.
Depending on the conditions included in your mortgage deal, you may be able to pay off a lump sum at some point down the line to help you get back to speed with where your mortgage originally would have been.
Mortgage Payment Holidays are available both for those with residential or Buy to Let in Nottingham mortgages, which means landlords also have assistance if rental payments are affected.
When reviewing your Mortgage Payment Holiday, we would recommend speaking to a Mortgage Advisor in Nottingham in the first instance rather than instantly looking to undergo a mortgage payment holiday.
Suppose there is not a pressing need to do so as Lenders will be prioritising the most urgent cases first. By approaching our Mortgage Broker in Nottingham, we will be able to talk through your circumstances and look at all options available for your situation.
For a customer, up to date with payments, not in arrears and impacted by COVID-19:
At the end of three months, an arrangement to pay will get agreed with the customer. According to their circumstances to recover any shortfall that has possibly occurred. At the same time, ensuring that the mortgage remains affordable and sustainable for the customer.
When mortgage payment holidays get carried out, they show on your credit score as a negative impact, but most lenders have now stated that any cases linked to the virus will mean that this does not apply in the current scenario.
When looking into the matter, it is an important reminder that you ask the question directly to your lender and makes a note of the response. Keeping a record of the name of the person you are speaking to and the date of the enquiry. In any case, this will avoid any possible confusion down the line as different lenders are carrying out other things.
The matter of remortgaging and product transfer have come to be quite controversial elements at this moment in time. There has been apparent evidence suggesting that lenders are asking borrowers not to make any unnecessary changes to their mortgages whilst within the current situation.
However, Lenders are not allowing these to happen during this time. However, borrowers who are near the end of their existing product might have to move on to the higher lenders variable rate.
In any case, this could perhaps mean to many borrowers acting too early will find themselves on a mortgage payment holiday that gathers interest on an even more expensive variable rate which could get avoided.
Our Mortgage Broker in Nottingham team highly recommend speaking to a Mortgage Advisor in Nottingham before you take any further action to see what the safest option would be, and the most sensible way forward.
Whilst the Government has advised people not to move to a new house unless necessary. So, if contracts have already gotten exchanged and the process is at the end with all in agreement, then going ahead and completing the purchase will be fine.
It would help if you did not pull out of your purchase unless, for example, you are worried about losing your job because of Coronavirus. Our Mortgage Advisors in Nottingham are advising everyone to proceed as usual for now and “wait and see” – you are not committed to completing your purchase until contracts get exchanged.
There are other options available, where some lenders are willing to offer ‘interest-only’, which will help reduce monthly payments drastically but not to add any increase to the loan amount by still servicing the interest payments each month.
It may not get deemed necessary to convert all your mortgage to interest-only and even putting part of the mortgage on this basis could help relieve some tension in your mortgage payments.
To borrowers who hold savings may find that remortgaging onto an offset basis may give them some more structured support as this will reduce monthly payments whilst their savings remain untouched.
An example of this for individual borrowers who may not understand offset mortgages would be as followed:
– Someone with a £400,000 loan and £100,000 in savings would only pay interest on £300,000 reducing their payments accordingly.
For others, a straight Remortgage in Nottingham to another lender could offer some relief. By calculating the cost of any Early Repayment Charges that may get incurred. It may well be enough to ease the burden or simply extending the term of your mortgage, which could be seen as helpful if you are struggling with your mortgage term or monthly payments.
Suppose you would like to discuss any of these options with a Mortgage Broker in Nottingham or to have a helpful chat about your current situation. Please get in touch with a Mortgage Advisor in Nottingham.
To qualify for a possible mortgage, you need an Agreement in it is referred to as a Decision in Principle.
Once you have obtained your Agreement in Principle, you are prepared and ready to support any offers you make as a First Time Buyer in Nottingham. There may even be potential to negotiate a lower price if you have one of these, due to it showing the seller you are serious and have the funds to proceed.
We tend to see more lenders using soft searches than those who don’t, however some lenders searches may still affect your credit score. This can be the case if it is a hard search, but generally speaking a soft search should leave your credit score more or less unaffected.
Soft searches are not as in-depth as hard searches, meaning you can trust that the lender made the correct choice either way.
If it is not a regular occurence, then a hard search should not make too much difference. It becomes problematic if you start having multiple hard searches within a short amount of time.
It’s worth remembering though that if your credit rating is good and you know it. Do not feel put you off by any of this. Especially if taking a hard search with that lender is the best deal for you.
Though it would be nice, unfortunately we cannot guarantee that having an Agreement in Principle will get you a mortgage. The Lender will still need to see all your documents and only after that will an Underwriter make a final decision.
Often we find that customers get in touch having been declined at application stage, as they have neglected to read any small print in their Agreement in Principle. You will need to provide ID to prove that you are genuine, payslips to prove you earn the amount you claimed and bank statements to prove you conduct your finances, before a lender will offer your case.
You can make an offer without an Agreement in Principle, though we really would not recommend it. An Estate Agent with credibility will want you to prove you can go onward with the process.
It is possible to obtain an Agreement in Principle within 24 hours of speaking to one of our Mortgage Advisors in Nottingham.
Usually, an Agreement in Principle will expire after 30-90 days. This does not mean you should just apply for the first house you find though, so don’t worry. If your Agreement in Principle expires. You can quite easily have it refreshed once you are ready to make an offer.
Finding a mortgage only to be declined a mortgage can understandably be disappointing. As such, we recommend getting an Agreement in Principle as early as you can.