Posted: 27 December 2017 by Higgins Homes
For a first time buyer there are two key elements to securing the home of your dreams. The first is having an income high enough to be able to get the right mortgage and the second is your deposit. The deposit in particular can have a big impact on whether you’re able to buy the home that you want. But how much should you be saving for a good first time buyer deposit?
Why does the deposit matter?
There used to be a time when you could get a mortgage without any deposit at all. However, this is no longer the case so if you’re planning to buy then you need to start saving. A deposit could come from anywhere – many people inherit money from relatives or are given some, or all, of a deposit for their first home by their parents. For others, it is simply a question of saving as hard as you can until you have what you need.
What’s the minimum deposit?
You could potentially buy a property today with a 5% deposit i.e. if you have saved the equivalent of 5% of the value of the property. If you have a 5% deposit then you might be eligible for the government’s Help to Buy scheme, for a new build property.
Is 5% always enough?
No. In fact, mortgage lenders today will rarely accept a 5% deposit unless you have the backing of the Help to Buy scheme. You are much more likely to need a 10% deposit as a minimum - the average high street lender is now looking for anything between 10% and 20%.
Why is a bigger deposit better?
If you’re able to get together more than 20% for your deposit then that puts your mortgage deal options on a different level. The bigger the deposit you have the lower your monthly payments are going to be, which could make the purchase easier to manage. You will also most likely get a much better deal on interest rates if you have a bigger deposit – you could pay as much as two thirds less interest, for example, if you have a 40% deposit as opposed to a 5% deposit.
What is LTV?
Lenders often identify the deposit amount you’ll need with an “LTV” percentage. This translates as “Loan To Value” and will indicate how much of a deposit you will have to supply for the mortgage you want. For example, LTV 95% means that you’ll need just a 5% deposit.
When it comes to deposits, it’s often possible to buy with a saved amount of 5% of the properties value. However, your mortgage deal could be better with a payment of a higher deposit percentage of the properties value.