With the increase in house prices over the past 12 months, having a deposit in place is something that can generally be that thing that takes a while for homeowners to get together. So, the question a lot of people can tend to ask is simply how much of a deposit is needed to buy a house?

What Is A Mortgage Deposit?

The first question we will answer is what a mortgage deposit actually is! It’s a relatively simple one as put quite simply; a mortgage deposit is a form of down payment that covers a percentage of the property price.

This could be as low as 5% and a mortgage will be needed to fund the remainder of the cost. Generally, the larger the deposit you have will mean that you could get a more competitive rate of interest.

Can You Get A Mortgage With No Deposit?

In short, the answer is yes! However, this will mean that you will need to obtain a 100% mortgage which is very rare and carries a high level of risk.

The biggest reason that 100% mortgages are so risky for borrowers is that house prices could call which will leave you in negative equity and this could mean that you will owe your mortgage lender more than the property you’ve purchased is worth!

In addition to this, the interest levels for a mortgage that would be equivalent to 100% are extremely high, making the repayments very expensive. It can be better to take out a mortgage with a deposit of at least 5% if you can (even if it means you’ll have to wait longer to get on the property ladder).

Can Parents Or Relatives Help Cover A Mortgage Deposit?

The answer here is yes, you can receive financial help from parents and close family members when purchasing a house, however, there is a process that needs to be followed rather than putting the money in your account and simply declaring it to be yours.

With a gifted deposit, the crucial thing is that there must be no agreement whereby you need to pay the money back. Some lenders will only allow you to accept a gifted deposit from certain people. This often includes immediate family members such as parents, siblings, and grandparents however sometimes more distant relatives such as aunties and uncles are not accepted.

Depending on the requirements of your chosen lender, the benefactor may be asked to sign a declaration that they relinquish all legal rights to the property and conveyancers may carry out their own anti-money-laundering checks to account for the source of funds.

What About A Buy To Let Property?

A deposit for a buy-to-let property works in the same way as for a residential purchase, however generally a total of 20% of the purchase price or more will be required. Typically, the better interest rates will kick in when you get to a 25% deposit.

Can We Help?

If you’re looking at purchasing a home soon or have any questions regarding mortgages or deposits, we’re here to help. Just drop us a call on 01322 553282 or enquire online to get in touch.