When looking to purchase a property one of the main questions people have is ‘how much deposit do I need?’. This does of course vary depending on what you are trying to achieve but it certainly has been a ‘hot topic’ since the new budget was announced this year with the mention of only a 5% contribution requirement for residential purchases. But all is not as simple as it seems.
Before the covid-19 pandemic, in order to purchase a residential property to live in most lenders required a minimum of 10% of the property price. However, there were also a few options available to those with just a 5% deposit. However, the impact of covid-19 on the market and lending changed this rather dramatically.
In the first lockdown back in April / May 2020 lenders simply stopped offering options to those with smaller deposits – making it extremely difficult, for first time buyers especially, to gather together the deposit needed to buy a property. Most lenders simply stopped considering cases with deposit sizes of 25% or less, with some lenders, such as Halifax, only considering applications for those people with a 40% deposit!
Over the last 6 months, however, this has been changing with deposit requirements becoming more flexible. Slowly but surely the lenders went from requiring a 40% deposit, to 25% then 15% – but now there are more and more options available for those with 10% and even 5% deposits. As Jade Pinkerton, a senior mortgage adviser at Oportfolio said ‘deposit requirements are now much more flexible than they were this time last year and are almost in line with how they used to be before the pandemic. However, it is important to note that there have been some changes to the affordability assessment of these cases and people will need advice more than ever before due to all of the changing requirements’.
The big name lenders, such as Santander, Barclays and Halifax have opened up and since December 2020 required deposits of 10% as a minimum. However, with this came increased restrictions. Most lenders usually work with an initial multiple of 4.5, 4.75 or 5 times salary in order to calculated the maximum loan possible, but for cases with a deposit of 10% these income multiples have been reduced to under 4.49%, there also other lender conditions imposed on these cases. For example, Nationwide will not accept applications for new build properties or loans above £500,000 unless the deposit size is 15% or above.
And in April of 2021 these requirements and deposit limits changed again.
Ever since Rishi Sunak released this year’s budget the question of ‘how much deposit do I need’ became even more complicated. He announced the government backing of mortgage options for buyers with only a 5% deposit. Almost immediately this resulted in many new enquiries from both new and existing clients all over the UK. The lenders have now had time to decide how to react to this and confirm their offerings with many of them releasing new products in line with this.
Ultimately, the larger the deposit you have the stronger your application will appear to the lender – which will allow access to more competitive interest rates, more generous affordability calculations and larger loan sizes. However, the introduction of options available to include mortgage products to those with 10% and 5% deposit levels has certainly opened up the options for those looking to buy and get on the property ladder.