How much deposit do I need as a first-time buyer?
When it comes to buying your first property the importance of having a good size deposit shouldn’t be underestimated. Put simply; the higher deposit that you have, the less risk you are to a prospective lender. A good deposit also shows that you have financial discipline and that you will be more likely to meet payments which all means that not only will you have access to a better range of deals, but that you’ll be much more likely to be able to secure some of the lowest rates available on the market. Generally, these days, anything over 20% is considered to be a high deposit and this is where you will find the more competitive rates.
A 20% deposit means that you would need to borrow 80% of the property value, this is called an 80% loan-to-value (LTV) mortgage. In this instance house prices would have to fall by 20% before a lender would be unable to recover the full loan if payments were unable to be met. This makes the loan a far less risky prospect for them and explains why the rates can be so much lower at this bracket and above. For those with smaller deposits of 5-10% there are still some good deals to be had so this isn’t in any way a barrier to getting on the property ladder. However, any amount you can save that will enable you to ‘jump up’ a bracket can be very worthwhile.
Saving for a deposit isn’t easy but whether you do it by cutting back on non-essentials or luxuries, selling your car, using the Lifetime ISA scheme or asking your parents for help it is essential in order to get on the property ladder. Many first-time buyers enlist their parents’ help with the deposit but there are other ways that parents can help with buying your first property. Some deals allow for parents’ income to be taken into account as well as the child’s salary, in this case the parents would be liable to meet repayments if the child was unable to. There are other variations of this on offer too – some deals allow for parents to guarantee that they will cover the remaining payments if the child should default, and some allow for the parents to only guarantee the part of the mortgage above the amount covered by the child’s income. All of these options are worth talking through with a broker who can discuss them in more detail. Straker financial services have helped many first-time buyers to secure their first home by finding the best deal for them no matter the size of their deposit so it’s always worth giving us a call to discuss your options.