How much deposit do I need for a mortgage?
Mortgage, to put in simple terms, is the amount that you borrow in exchange for your property title deed. It comes with the condition that conveyance of your title will become void upon the payment of the debt.
Many people take out a mortgage to buy a property in the UK. Most people, especially the first-time buyers, tend to save money to ensure they can buy a property. For many, it is not possible to arrange the entire price of the property.
Guaranteed loans, homeowner loans or unsecured loans could help you arrange funds. But, most people prefer saving a certain amount to use it as a mortgage deposit.
“How much deposit do I need for a mortgage?” It is the most obvious question that comes to most people’s mind while trying to save money.
- It would depend upon the total price of the property you are planning to buy.
- In most cases, you will need at least a 5% of the total value of the property to get a mortgage. That will ensure lenders can lend you the remaining 95% of the amount. For example, if you are planning to buy a property worth £100,000, you must at least have £5,000 saved.
- Many customers prefer to save 10% or more of the total property value. A recent survey conducted in the UK shared some facts. Most first time buyers deposited more than 10% towards their mortgage. The average deposit was 17% of the total value. In some cases, it could also go as high as 20% of the property value.
- Bigger the mortgage deposit you can save, the better.
What are the benefits of making a bigger mortgage deposit?
1. Smaller monthly repayments. The more significant the deposit you make, the smaller your total loan amount will be. It will lead to small monthly repayments.
2. You must ask yourself “how much deposit do I need for a mortgage” and then try to save as much as you can.
3. You get cost effective or much cheaper mortgage deals. The more amount you have to deposit towards the house mortgage, the less risk you will pose to a lender. It will enable a lender to give you the lowest possible interest rate.
4. Reduced chances of going into negative equity. What is the negative equity? It is the falling of the property value well below the outstanding amount of the mortgage. It can lead to difficulties in switching mortgages. The more of your house you own outright, the better.
5. Better chances of passing the affordability tests. Most lenders conduct checks to find out if you will be able to pay your mortgage payments on time. These checks take your income and expenses into account. If you deposit a smaller amount, your chances of clearing these checks will reduce.
How much deposit do I need for a mortgage? If you are not able to figure out the right amount, please contact your mortgage adviser at the earliest
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