During the mid-2000s, mortgages were ridiculously easy to obtain. You could approach a lender with a small deposit and still get accepted, the truth is that these applicants really couldn’t afford a mortgage and shouldn’t have been granted one. In spite of these events, the treacherous credit crunch came knocking at the door and the mortgage market began journeying down a spiral of decline. It got to the point where it was practically impossible to get a mortgage.
Eventually, rules and regulations were put into place which let the market catch back up to speed. The government introduced the Help to Buy schemes to try and give applicants that confidence that they needed. 95% mortgages crawled back into play making the future look bright again for the mortgage market. This is generally where mortgage percentages settle, 95% mortgages are offered by most lenders (unless you are using a specialist lender because of bad credit, etc).
When we say a 95% mortgage, we mean that you put down a 5% deposit and the 95% is your mortgage loan from the government.
As an experienced Mortgage Broker in Cambridge, we know that meeting your minimum deposit can often prove challenging, especially if the economy is performing badly and lenders are only offering mortgages less than 95%. It’s more common to see First Time Buyers struggling to save up for their deposit as they are often living in rented accommodation and can’t afford to move out. Don’t panic, there will be thousands of other applicants in the same boat as you. We have put together a list of the most common we get asked regarding mortgage deposits, we hope that they help:
Yes, a higher deposit will always increase your chances of being accepted for a mortgage. You are showing that you can afford more than the minimum expected; in their eyes, this shows that you are going to be more than capable of meeting your payments hence presenting yourself as less of a risk to them.
Lenders using offer mortgages in bands of 5%. In other words, from least expensive to highest, you will get 95% mortgages, 90%, 85%, etc.
As a professional Mortgage Advisor in Cambridge, this is something that we don’t recommend you do, even though in some circumstances you can. The reason why some lenders won’t let you do this as you are technically loaning 100% of your mortgage. This is why we suggest that you save up for your deposit. Your lender will also be able to see that you’ve been saving up and built up a deposit, not just borrowed the whole amount.
Firstly, a gifted deposit is a certain amount of money that is gifted to you to put towards your deposit. A gifted deposit can only be gifted by family members or friends. This sum cannot be a loan it strictly has to be a gift.
Gifted deposits are becoming more and more popular, they tend to be make up the majority of First Time Buyer’s deposit. If you are lucky enough to receive one, you can use it as part of your deposit. Sometimes applicants are offered a gifted deposit and already have the minimum deposit required, so by adding your gifted deposit to your own deposit, you should make up a deposit greater than 5%. This can greatly increase your chances of being accepted by your lender.
The mortgage market quite often relies on gifted deposits. Without them, the number of First Time Buyers struggling to take that first step onto the property ladder would be a lot higher. So yes, lenders do accept gifted deposits for a mortgage; as a Mortgage Advisor in Cambridge, we would say that they are the perfect stepping stone for your mortgage journey.
You will always need to prove where you deposit has come from. Your lender will ask to see your bank/savings account statements so that they can see both your deposit and how much your monthly outgoings are. They will analyse your statements carefully and take into account all of your current financial outgoings and commitments.
Proving the source of the deposit (audit trail) can be the trickiest part of the application sometimes. If you are selling a property, then the memorandum of sale given to you from the estate agent is your proof.
If you have made any large deposits into your bank account recently, you will need to prove where this has come from. For example, if you have sold a car, you will need to show your lender a receipt of this transaction; the sale price must match the exact amount that was transferred to your account. The longer that you have had funds in your account for, the more impressed a lender will be.
As an experienced Mortgage Broker in Cambridge, we know that lenders aren’t a big fan of large cash deposits. They will be more curious if you deposit a big lump sum of cash into an account then apply for a mortgage straight away. A lender will see this and take it that you haven’t really saved up for your deposit, therefore are you reliable? Lenders will always think smart, they have to be completely certain that you can afford a mortgage and will not take any chances if they have any doubts that you will be able to meet your mortgage payments.
If you are interested in a Help to Buy mortgage and you qualify for the equity loan scheme, you must know that it is always a 5% minimum deposit. Your deposit is always topped up by 20% through the government loan. You can always put down more than a 5% deposit if want to, the government will make up the rest to make up a total of a 25% deposit. This makes your total mortgage 75%.
Getting a mortgage through the Help to Buy equity loan schemes should allow you to access competitive rates.
The percentage that the government loaned you will have to be paid back. You get 5 years to pay off the loan interest-free, however, if you don’t manage to pay it off you will start receiving interest on the amount that is owed. This rate starts at 1.75% and can increase every year.
Sometimes you won’t sometimes you will, it completely depends upon your circumstances and the lender. For example, if the property price was listed with a £100,000 price tag but has been offered to you for £90,000, some lenders may accept this as your deposit.
This can work in your favour if you have the Right to Buy from the local authority or another social landlord.