If there’s one word likely to drive fear into the hearts of anyone struggling to save for their first home, it’s deposit. With cost-of-living rises putting a squeeze on salaries it can be hard to find surplus cash to add to the ‘house buying’ fund, making the dream of home ownership feel frustratingly out of reach.
While it’s true that you’ll need some savings to own your own home, the size of your deposit isn’t the only influencing factor that will determine whether or not you’ll be accepted for a mortgage.
Lenders take many other criteria into consideration when assessing affordability, so don’t be dismayed if you haven’t managed to put much money aside. There are plenty of ways you can prove to a lender that you can afford the monthly repayments, without having to cough up a big deposit.
How can I get a home if I haven’t saved a big deposit?
It can be easy to assume that a bigger deposit makes it easier to buy a home. After all, the more money you have to put down the bigger the loan you can take out, right?
Wrong. The size of your deposit has no bearing on the loan amount you can borrow. What matters to lenders is making sure you can comfortably afford the repayments on your current salary and outgoings, and it’s this that will determine how much a lender is prepared to loan you towards buying your first home.
Some of the things a lender will want to know in order to assess your suitability for a mortgage loan include:
- What your annual and monthly income is after all tax and NI deductions
- If you have a student loan and if so, how much for
- How many credit cards you have and what the outstanding balances are
- If you’re currently repaying any other loans and the terms of these
- Any regular expenditures you have each month, for instance childcare costs
- If you have any existing finance agreements, for example a leased car
In addition to these questions, a mortgage broker or lender will also run a soft credit check on you to see what your current credit score is. While this won’t prevent you from taking out a loan or leave a lasting record, it’s just another way that lenders like to assess your viability for a loan before making a lending decision.
Why does this matter if I don’t have a big deposit?
As we said early on, a deposit is just a small part of being able to purchase your own home. It isn’t the deciding factor.
If you have a big deposit saved but lots of debts and a low income, then you won’t stand a better chance of getting a mortgage just because your deposit is big. The same applies if you inherit or win a sum of money but have high monthly outgoings and are regularly overdrawn.
A lender isn’t only interested in how much deposit you have to put down. They also look at your entire financial circumstances to determine if they’re prepared to offer you a mortgage. In this respect, someone who who has fewer savings but low outgoings and zero debt could be considered a better candidate than someone with a big deposit who has multiple debts and a bad credit history.
So, having a big deposit doesn’t automatically mean you’ll find it easy to get a mortgage. How careful you are with your spending and how well you utilise your income will also play a significant role in demonstrating your suitability for a loan.
How much deposit will I need to buy my first home?
The good news is, you don’t need as much deposit to get on the property ladder as you might expect. Most lenders only require you to put down 10% of the property’s value, but if you aren’t able to save this much you’ll find some who are happy to accept a deposit as low as 5%. See our blogs on Deposit Unlock, Own New Rate Reducer, and the Government Mortgage Guarantee Scheme for more information.
If you’re not already putting your savings into an ISA, take advantage of these tax-free ways to grow your money without any risk. Many new build developers also offer incentives, such as a 5% gifted deposit towards a home, so plenty of options exist if you haven’t managed to save a big deposit but would like to buy your own property.
I’m interested in finding out if I’m eligible, what should I do?
If you have some savings put aside but you’re not sure if they’re enough to get you on the property ladder in your area, give us a call. Our mortgage brokers are on site seven days a week and will be able to give you a no-obligation lending decision over the phone, with just a few simple questions about your finances.
To see if you could soon be turning the key in the door of your new home, book an appointment via our website.
Your home or property may be repossessed if you do not keep up repayments on your mortgage
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