How much deposit do I need to be able to get a mortgage?
It’s a question we hear asked a lot, especially from people who haven’t been through a mortgage application process in a good while and who worry that lenders have changed their policies around what percentage of a property’s value they’re prepared to lend against (the loan to value, or LTV).
The simple answer to the question, rather unhelpfully, is that it depends.
Following the financial crisis of 2008, lenders – both banks and building societies – were forced by regulators and by the Bank of England to tighten their lending criteria to ensure customers were able to afford to repay the loans they were offered.
What that meant in practice was that the majority of mortgage lenders became more risk-averse. The days of widespread large multiple lending, for example – where mortgage providers were offering loans calculated at four to six times annual salary – certainly became as rare as hen’s teeth.
The previously common 100% mortgage – where a lender would stump up a mortgage to the full purchase price of the property – also became harder to come by (though they have made something of a comeback in the early part of 2019).
And, inevitably, there was also an effect on the way lenders viewed the deposits that customers were able to make. But this was less about the amount involved and more about how the level of impact the deposit had on the lending risk concerned.
It doesn’t take a degree in economics to be able to understand that a customer who can put down 40% of the value of the property they want to buy is a more attractive proposition than someone who can only get a deposit for 5%.
But having a small deposit certainly doesn’t mean there’ll be a problem getting your mortgage application approved. Far from it, in fact.
Having any sort of deposit sends a positive message to the mortgage provider that you’re prepared to share the financial risk and that you’ve thought and planned ahead for this moment.
That said, some lenders will have limits on the LTV they will accept and so to that extent, there may well be a minimum deposit a lender would expect to see for any given mortgage product.
However, assuming you’ve cleared any LTV hurdle, of far more interest to a lender in determining whether your application is approved or not will be your ability to afford the resulting repayments.
Remember, too, that the more you’re able to put down, the less you’ll be borrowing and the lower your repayments will be (or, depending on your priorities, the shorter the mortgage term will be).
If you already own your home, then the equity in it will probably make up all or part of any deposit you intend to put down.
But remember, you’re likely to also have to find money to pay Stamp Duty, legal fees, surveyor fees and any other costs associated with your move. And if you plan to do any renovation work on your new home, you’ll need to consider how you’ll be paying for that, too.
Talking to a professional mortgage broker like Oportfolio can be really useful in helping you to plan how to arrange your move from a financial point of view. So if you’re looking at a move during 2019, why not get in touch and have a chat with one of our friendly team?
Want to know how other people feel about working with Oportfolio to buy their dream property? Watch Gus and Selena’s video story!
To find out more about our friendly and professional mortgage service, fees and what we can do to help make sure you’re not paying over the odds for your mortgage, why not visit www.oportfolio.co.uk or give us a call on 020 7371 5063.
Your property may be repossessed if you do not keep up repayments on your mortgage.
Oportfolio Ltd fees are payable on application. We charge a broker fee for property purchases of £495 and a remortgage/further advance fee of £395. Our product transfer fee is £295.