Different Deposit Bands
Lenders often offer mortgage products in bands of 5%. The deposit percentage determines which band you fall into. For instance:
- 95% Mortgages: These are the most expensive mortgage products, as they require only a 5% deposit. Borrowers with 5% deposits are considered higher risk, hence the higher interest rates.
- 90% Mortgages: With a 10% deposit, borrowers can access better interest rates compared to 95% mortgages.
- 85% Mortgages: Deposits of 15% offer even more favourable interest rates.
- 80% Mortgages and Below: As the deposit percentage increases, the interest rates generally improve, making these mortgages more cost-effective for borrowers.
Is it Better to Put Down More Than 5% Deposit?
Yes, if possible, putting down a higher deposit is beneficial. Not only does it secure a more competitive interest rate, but it also reduces the overall amount you need to borrow, potentially saving you money in the long run.
Why Having a Suitable Deposit is Essential for First Time Buyers in Lincoln
Securing a mortgage to purchase a property is an exciting step towards homeownership, but for many first time buyers in Lincoln, saving up for a deposit can be a significant challenge.
In the post-credit crunch era, lenders have become more cautious, and 100% and 125% mortgages are a thing of the past. Nowadays, the norm is 95% mortgages, which require borrowers to demonstrate their ability to save each month.
The Importance of a Suitable Deposit
Having a suitable deposit is crucial for several reasons, not only for lenders but also for the buyers themselves. Here’s why having a deposit matters:
1. Demonstrating Financial Responsibility
Putting down a deposit gives lenders the assurance that you are financially responsible and committed to homeownership. When you invest your hard-earned savings into the property, it shows that you have “skin in the game.”
In other words, you have something to lose if you start to struggle with your mortgage repayments. This reduces the perceived risk for lenders, making you a more attractive borrower.
2. Impact on Interest Rates
The amount of deposit you can put down plays a significant role in the interest rate the lender can offer you. In general, the higher the deposit, the lower the interest rate.
By offering a larger deposit, you demonstrate that you are less of a risk to the lender, resulting in better interest rate options for your mortgage.
3. Lower Monthly Payments
A larger deposit can also lead to lower monthly mortgage payments. By reducing the amount you need to borrow, your monthly repayment amount becomes more manageable, providing financial breathing space.
Taking Out a Personal Loan for the Deposit
While saving up for a deposit can be challenging, it’s essential to consider other options before resorting to borrowing funds. Some people may consider taking out a personal loan for the deposit.
It’s worth noting that lenders view this as an additional credit commitment. As a result, you may be granted a smaller mortgage than you would have qualified for without the loan.
Gifted Deposits
A popular option for first time buyers in Lincoln is gifted deposits. Most lenders accept gifted deposits from family members and friends, which can provide invaluable support for those entering the property market.
The donor of the gift must confirm that it is indeed a gift and not a loan. “Bank of mum and dad” gifting funds towards a deposit has become a prevalent practice in the current property market.
Evidencing the Deposit
For anti-money laundering purposes, all applicants need to provide bank statements to evidence their funds. Lenders like to see how the funds have built up over time, creating an audit trail.
Any recent large deposits will require additional documentation to prove their source. This could include receipts for asset sales or a memorandum of sale if selling a property.
Buying as a Sitting Tenant or from a Family Member
In some cases, such as buying from a family member at a discounted price, a deposit may not be necessary. Certain lenders may accept the discounted purchase price as your deposit, making the transaction more accessible for unique situations.
Expert Mortgage Advice in Lincoln
Navigating the mortgage market can be overwhelming, especially when it comes to determining the right deposit amount and understanding the various mortgage products available. Seeking mortgage advice in Lincoln from a reputable mortgage broker in Lincoln can be invaluable.
A knowledgeable mortgage advisor in Lincoln can provide tailored guidance, helping you determine the deposit that suits your financial circumstances and assisting you in finding the most suitable mortgage product for your needs.
Conclusion
A suitable deposit is essential for first time buyers in Lincoln looking to step onto the property ladder. It demonstrates financial responsibility to lenders, potentially leading to better interest rates and lower monthly payments.
While saving for a deposit can be challenging, exploring various options such as gifted deposits and discounted purchases can be beneficial.
Seeking expert mortgage advice in Lincoln and guidance from a reputable mortgage broker in Lincoln can make the home-buying process smoother and more rewarding, ensuring you find the best mortgage solution to achieve your homeownership dreams.
Date Last Edited: December 14, 2023
