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Nowadays 100% mortgages, also known as ‘no deposit’ mortgages, are not available and people who are looking to buy a home will require at least a 5% deposit to get a mortgage offer from a lender. Lenders won't feel comfortable lending a buyer the entire value of a property, especially without a guarantor, and they would much prefer to offer a lower Loan to Value (LTV) ratio in case you fall behind on your mortgage repayments.
This means in order to get a mortgage, first-time buyers who don’t yet have any equity in a property that can be used as a deposit will need to save for a deposit instead. Depending on the value of the property you’re looking to buy and the LTV you’re wanting to get, the amount you need to save for a deposit can differ quite significantly. There are a few different ways to save for a mortgage deposit though, including;
Of course, the most traditional way to save for a mortgage is to open a savings account. There are a number of different savings accounts out there, so make sure you’re choosing the account wisely to prevent any issues relating to withdrawing your money later down the line.
When you’re planning to simply save enough money for your deposit, take some time to think about how much per month you’re realistically able to save. Once you have decided on a reasonable monthly savings target, set up a standing order for this amount to your savings account every month just after your payday. This is the best way to ensure that you actually save the amount you’re planning to every month.
Unfortunately, the Government's Help to Buy ISAs are no longer available, but you can get a Lifetime ISA instead which you can also use towards a deposit for a property. Anyone aged 18 to 39 can open a LISA, however, there are rules and restrictions to be aware of.
A LISA is essentially a savings account that you can put up to £4,000 a year into. The good thing about this ‘savings account’ is that the Government will add a 25% bonus to your savings, up to £1,000 per year. The money you save in a LISA can be used to help you buy your first home if the property costs under £450,000 and you’re planning to buy at least 12 months after you make your first payment into the account.
It is important to note that if you have a LISA and you need/want to take some of the money you have saved out of the account for reasons other than buying a property, you will have to pay a withdrawal charge of 25%.
Another way the Government can help you when you’re buying your first home is with a Help to Buy equity loan. This is a new scheme from the Government and whilst you will need to save some money for a deposit when getting an equity loan, you won’t need to save as much.
When using this Help to Buy scheme, the Government will lend you up to 20% of the value of the property you want to purchase (40% in London) and this can make a big difference to the mortgage products you get from lenders. In order to get a Help to Buy equity loan, the property must be a new-build and sold by a Help to Buy registered homebuilder. So, be sure to do your research before applying.
If you’re unable to save a deposit yourself, you do have the option to use money that was gifted to you from a family member or a friend to help you get a mortgage. When you’re lucky enough to be able to use a gifted deposit, you shouldn’t struggle to get a competitive mortgage.
You do need to be careful with gifted money though as lenders often don’t like ‘loans’ for deposits, so you can’t borrow the money from a family member or friend, it will need to be a formal gift. It is a criminal offence to not declare this on your mortgage application and you are best seeking mortgage advice if you’re going to use gifted money.
Another option to consider if you’re struggling to save for a mortgage yourself is a family mortgage. Something like the Family Springboard Mortgage from Barclays can work really well.
To discuss getting a mortgage in much more detail with a mortgage advisor in Maidenhead, book a free mortgage consultation with one of our qualified advisers today. Here at Mortgage Required, we have been providing mortgage advice to our customers for nearly two decades now and we will happily assist you in any way we can. We provide a whole of market mortgage service and you can rely on us to help you find the most suitable mortgage for you, regardless of your personal circumstances.
Your home may be repossessed if you do not keep up repayments on your mortgage.
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