One of the major hurdles you need to consider when buying your house is the deposit. You will need a good amount of your deposit down in hard cash. No wonder 73% of aspiring first-time buyers named the deposit as their biggest obstacle to purchasing their own home.
Don’t sweat though. We got you covered. This guide has everything: from what a deposit is, to what percentage you can still get away with, and what other options you have to foot the deposit.
What Exactly Is A Deposit?
Let’s start with the basics. What does a deposit mean exactly? The deposit is what you need to pay up-front. They are typically given as a percentage of the total house price. In most cases, the rest of the price is covered by the mortgage you take out.
Let’s look at an example, Thomas has his eyes set on a £200,000 house. The mortgage provider requires him to put down a bigger chunk, unfortunately. He has to pay 15% of the house price as a down payment – i.e. a 15% deposit. This means he needs to borrow £170,000 from the bank (85% of the house price). The rest – £30,000 – will be his 15% deposit, which he will need to pay in cash.
How Much Deposit Are You Expected To Pay?
Nowadays, the average deposit is 15%-20% of the house price. In January 2021, only a handful of low-deposit mortgages were available for people wanting to step on the property ladder. This made the chance of purchasing a house at a young age rather dire…
There is some light at the end of the tunnel though. The UK government announced in March 2021, that they would be issuing a mortgage guarantee.
A mortgage guarantee aims to help people step onto the property ladder in these tough times. According to plans, they will offer a guarantee to the banks for mortgages with a 5% deposit. The scheme will run from April 2021 to December 2022 and will have a limit on the house price of £600,000.
This is an amazing opportunity that you should consider if you have your eyes set on owning your first home.
Options To Lower Your Part Of The Deposit
If you want to get a more manageable deal, there are several options you can consider if you find it hard to save for a deposit.
The most common is asking for help from your family or friends. They can either lend you the difference or sign the mortgage contract as a guarantor. If you go with the guarantor mortgage option, a parent or a close family member would offer their property or savings as a security against the mortgage. Furthermore, they also promise to the bank to pick up any missed payments.
Asking for money and financial help with a cap in hand is hard… But sometimes that is the best solution. You will need to have a serious conversation first though.
Another option would be to co-buy the house with a family member or your best friend. A tempting option, indeed, but before you go out and purchase your BFF together, you do need to consider the relationship first – don’t need to buy a house with your frenemy. You need a rock-solid foundation and even then the risk is high.
The last option we have for you is Shared Ownership. Within this governmental scheme, you only purchase a share of the property (between 25% and 75%). This means, you only buy a part of the property and rent the rest. These ‘part-buy, part rent’ opportunities are offered by not-for-profit housing associations for first-time buyers with a lower income (£80,000 a year or less in England). Check the Government’s page on Affordable home ownership schemes for more info and options.
Summary
Deposits are a hard subject. There are a lot of ways to go about your deposit but the best option is to save. The bigger percentage of the house price you can pay in cash, the lower amount of mortgage you need to take out. If your one true dream is owning your home ASAP, you can get away with a 5% mortgage as well. Make sure you talk to your financial advisor first though to discuss your options.
If you are looking for houses perfect for first-time buyers, browse our properties. Our amazing selection of new builds will sure help you find your dream home. And the best part: you can save some hard-earned cash with the Help To Buy: Equity Loan.
