Buying a home is one of those big-time decisions we all make at some point in life. Whether it’s your first home or you’re considering moving into a new home, perhaps because your family has grown or you feel you need a change, you will never go wrong directing your funds to a home purchase. However, homes also don’t come cheap and unless you’re making really good money, or your bank account is really loaded, a mortgage or home loan is your best option to fund a home purchase. This is not only the case in the UK but literally anywhere else around the developed world.
Now, if you’re taking out a mortgage, there are various things to put in mind. The most significant among these is the mortgage down payment, which is also referred to as mortgage deposit. If you guessed right, this is all this article is about. Assuming you’ve just moved to the UK or you’ve come of age and you want to move out of your parents’ house, will you be required to raise a down payment to get approved for a UK mortgage? Well, not really, but it depends. Below are a few pointers to get you informed.
Mortgage Down Payment and How Much You Need
When buying a property through a mortgage, most lenders will normally ask for a down payment of at least 5% of the value of the property you want to buy. However, some banks and conventional lenders will allow you to raise as much deposit as you can in exchange for better mortgage rates. Also, the guys from themortgagebroker.co.uk point out that since property value depends on its location in the U.K. and that different lenders have different kinds of mortgages, it’s best to work with a trusted mortgage broker when shopping for a home loan. This can help you secure the best deal for your home loan without the need to raise too much money for your deposit.
Should I Raise More or The Minimum Deposit?
As mentioned above, you’re likely to get a better loan offer with a larger deposit. This is because, in the eyes of lenders, you’re seen as a less risky borrower. But then again, with a home price average of £230,000, homes in the UK don’t come cheap. This makes it important to start saving as early as you can for your mortgage deposit, especially if you’re planning to buy a home in top tier areas such as London and Greater London. In addition to attracting better interest rates, however, another big advantage of raising a bigger mortgage deposit is that it decreases the loan term since you will owe less money. It can put you in a better position to clear your mortgage payment faster, freeing you from straining financial commitments.
What If I Don’t Have a Deposit?
Well, it is also possible to get a mortgage in the UK without a down payment. These are known as 100% mortgages or 100% LTV mortgages. However, they are extremely rare and if you manage to secure one, the interest rates are often high. They are also often associated with certain additional requirements, such as having a superior credit score and a guarantor who owns property in the area you intend to buy a home.
In a nutshell, you don’t really need a mortgage down payment to buy a home in the UK. Owing to the many benefits of having a bigger deposit, however, saving up your home loan deposit early is the best way to go.