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How much deposit will I need to save up for my first mortgage?
When you decide to get a mortgage to buy your first home, the deposit is probably what concerns you the most, because it is a large sum of money that has to be paid to the lender upfront. You can pay any amount of deposit you like, as the higher your deposit, the less you will have to borrow. Paying a larger deposit also means that you will have a wider choice of mortgage deals and better interest rates. The minimum deposit that you will have to pay is 5% of the price of the property you are buying.
What is a gifted deposit?
A gifted deposit is when your deposit has been gifted to you by friends or family. Many parents will give their children a gifted deposit to help them buy their first property. A gifted deposit will require a letter to the lender from the person who is making you the gift. The letter usually states the relationship of the ‘gifter’ to you and also contains a statement that the person has no claims on the property you are about to buy and they do not expect their money back.
Usually lenders accept deposits gifted by the family. When the money is gifted by friends, it may get a little complicated. If you would like assistance, our expert mortgage advisers will be able to guide you through the process.
What is Proof of Deposit?
When you apply for your mortgage to a lender, they will want to know how much deposit you have, where it came from and where you have kept it. You will have to provide bank statements showing how much you have saved for your deposit and in which account you have kept it. In case you have received a gifted deposit, you will also need to provide a ‘gifted deposit’ letter. Together, all this will constitute the proof of deposit. This will ensure the lender that you actually have a deposit to put towards your mortgage.
If you use online banking, you can download your bank statement for the account containing your deposit.
How much deposit do I need for a Help to Buy mortgage?
The Government offers a scheme to help first time buyers to buy their property. It is known as the Help to Buy equity loan scheme and the perk is that you can buy a property with only a 5% deposit. The government will lend you a further 20% of the property price interest-free for the first five years, so you’ll only need a mortgage for 75% of the buying price. The only stipulation is that you have to buy a new build property.
What is the minimum deposit for a Buy to let mortgage?
You will typically apply for a Buy To Let mortgage if you are buying a property to rent out. However, in case of a Buy to Let mortgage, you will need a deposit of at least 25% of the value of the property you are buying. If you have more than 25% though, you will have a wider range of choices mortgage deals and better interest rates.
Why should I Put Down a Bigger Deposit?
In case of residential mortgages, you will need a minimum deposit of 5% if you are a first-time buyer. However, the larger your deposit, the higher your chances for a better mortgage deal with lower interest rates, thus lower monthly payments, saving you more money in the long run.
Things are a bit different when you apply for a buy to let mortgage. In this case, most lenders will ask for a 25% deposit. Here too, a higher deposit will open up a range of better mortgage deals for you.
When you apply to a lender for a mortgage, they will assess your financial viability by examining your monthly income and expenses. This will help them to work out whether they will lend to you at all, and if they do, how much they will lend.
Here is an example of how lenders work things out. Lenders offer you a mortgage that is roughly based on 4 times your income, although it also depends on factors like your expenditure and debts. So, if you want to buy a property worth £200,000 and your income is £40,000, you will likely be offered a mortgage of around £160,000. If you have a deposit of £40,000, then you will be able to secure the property of your choice.