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How To Make The Most Of Your Deposit

The level of your deposit will do a lot to determine how attractive you are to mortgage lenders.  As a rule of thumb, the bigger your deposit, the more options you will have.  If you have no deposit or a small deposit, you will need either to look at niche options or to increase your deposit.  Here is a quick guide to what you need to know.

No deposit

If you have no deposit at all, then you may find it impossible to get a mortgage without some form of assistance from a third party.  Even with assistance, you may find yourself looking at a very limited range of options.

Realistically, your best approach is to speak to a mortgage broker to see what, if anything, might be open to you.  Be prepared to be told that the answer is nothing.  If, however, you can get help from someone else, you may be able to access a product such as a guarantor mortgage or a family mortgage.

Low deposit

If you can put together a deposit of at least 5% but less than 20% then you are in low-deposit-mortgage territory.  In this instance, probably your first step should be to see if you qualify for the government’s Help to Buy Mortgage Guarantee Scheme.

If you do, the government will guarantee up to 15% of the purchase price of the home.  This would effectively create a 20% deposit.  With a 20% deposit, you can expect a lot more options to become available to you.  You may still not qualify for the very best deals.  If, however, you demonstrate responsibility, these may open up to you in future.

If you don’t, then you may still be able to get a mortgage.  You should, however, be prepared to jump a very high bar.  At a minimum, you should have a solid credit record and a solid employment history.  Ideally, you should have no other debt (apart from a student loan).  If you do it should be well under control.  It’s preferable if you have savings aside from your deposit.

Even if you meet all these criteria and approach the right lender, be prepared for rejection.  If a lender is at all uncertain about your ability to generate income over the duration of your mortgage, then they will turn you down.  Apart from anything else, they are legally obliged to do so.  This can be disheartening but remember you do still have the option to grow your deposit.

Growing a deposit

If you have set your heart on getting on the property ladder, then it may be worth seeing if you could qualify for the Lifetime ISA.  The benefit of this is that the government will top up your savings.  The drawback, however, is that a Lifetime ISA can only be used either to buy your first property (to live in) or to finance your retirement.

If you want a bit more flexibility, then a regular ISA might be a better choice.  You don’t get the government top-up but you do get your savings/investments protected from tax.  You also have the option to use them as you wish.  This means that you can withdraw money to use for other purposes and you may still be able to replace it.

Whatever option you use, you should aim to build your deposit out of your own savings and/or any personal windfalls.  Be very careful about adding gifts to your deposit.  If you have a lender in mind, check their rules about them.  If you don’t, check a lender’s rules on gifted deposits before you apply to them.  If you are heavily reliant on gifts to make up your deposit, it’s advisable to speak to a mortgage broker about your best options.

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