“A BUDGET FOR HARD-WORKING FAMILIES…“
One of the first steps in getting on the property ladder and easily one of the biggest hurdles is raising the deposit. The size of your deposit will determine how much your home loan will cost. Here’s our guide on how much you need to raise before you buy.
The minimum deposit – 5%
Typically the minimum amount you’ll need is 5% of the property value and the lender would then lend you the rest provided you meet their affordability criteria. However, you’d be limited to the number of lenders and mortgage deals available to you and it can be harder to get approved for, as there is a higher risk for the lender. You’ll need to prove that you can keep up with the monthly repayments so a good credit score is important. Lenders will also look closely at affordability, to see if your wage can cover mortgage repayments and still leave you with enough to live on.
Most people aim to save at least 10% deposit, as there are more mortgage deals available and from a wider range of banks and building societies. According to a 2015 Which? National property survey, first-time buyers in the UK save an average 17% deposit.*
A deposit of 25% will open you up to even better mortgage deals and rates and you’ll be more favourable/attractive to banks and lenders.
Essentially, it’s best to remember this rule of thumb;
The more you can put down towards your deposit, the more likely you are to get a
cheaper mortgage rate.
Here’s an example:
If you wish to purchase a home valued at £300,000, you will need to have saved £30,000 for the deposit to get a 90% mortgage. If, however, you managed to save more, say £60,000 (20%), you’d get an 80% mortgage covered by the lender. This is the Loan to Value (LTV) ratio and will mean your monthly mortgage repayments are much smaller.
There are of course other important factors that affect the interest rate you’ll be able to get, like your credit score.
What about no deposit?
Hundred percent mortgages are available as of this year, where you borrow the entire cost of the house. The number of products like these has been on the rise since the 2007 financial crash. These types of mortgages normally require a family member to act as a guarantor who will commit/be liable to making the payments if you are unable to.
There are risks involved with 100% mortgages, which should be taken into account before considering them. The biggest risk is that you can fall into negative equity. This is when you have a mortgage debt bigger than what your property is worth, which can happen if the value of the house drops. Negative equity can make it harder for you to move house or remortgage.
The other risk is that the interest rate can be higher, making it harder for you to repay. Since there is no deposit being paid, a 100% mortgage poses a greater level of risk to lenders as well, so they tend to increase the interest rate for the borrowing.
The best advice when saving for a mortgage is to start saving early and remember the rule of thumb
The more you can put down towards your deposit, the more likely you are to get a cheaper mortgage rate.
This article is taken from Mortgage Solutions and features an open letter from Malcolm Davidson, director of broker UK Moneyman to the Financial Conduct Authority (FCA) on non-advised mortgage product transfers.
Should Lender Product Transfer be flagged with the warning “Buyer beware”?
No one can doubt the success of the Mortgage Market Review (MMR) of 2014 for which the regulator should be congratulated, but I feel the market is beginning once again to potentially fail a section of borrowers.
If I may take a direct quote from Section 5.2 of the July 2010 pre-MMR Responsible Lending Consultation paper:
‘We have a mortgage market where many consumers have regularly remortgaged, shopping around far more than seen in the investment market, for example. For many of these consumers, the market has worked well.
‘But the level of mis-buying also highlights that some consumers are failing to properly engage and that we cannot rely on all consumers to be able to protect their own best interests.’
When this was written back in 2010, I do not feel there could have been any reasonable way anyone, including the FCA, could have known just how big the post MMR non-advised mortgage product transfer market would become.
Choice for consumers is a good thing and I have no problem whatsoever with a client hooking into a new deal with their current lender, as long as they are aware that there may be other more suitable deals available elsewhere.
Take my clients Darren and Dawn from Manchester.
Their lender waived their early repayment charges before the end of the fixed rate I arranged for them and they hooked into a new deal online without taking further advice.
Dawn was pregnant at the time and when they approached the lender for a home improvement further advance a few months later, they were declined on affordability.
The client re-engaged with me at this point and whilst I was able to help them obtain the additional funds they needed to create an extra bedroom, a £3,000 early repayment charge was triggered.
Had Darren and Dawn spoken to an adviser instead of taking the easy ‘click here for a cheaper deal’ option, I’m sure their future plans for extra funds would have been discussed and the early repayment charge avoided.
The problem we have here is that most clients need advice, even when it comes to a straightforward remortgage or product transfer but they don’t always realise it.
Lenders have invested heavily in technology and now encourage the clients to take a new deal online.
I understand the size of the direct-to-lender product transfer market is in the tens of billions, and no doubt a large chunk of that is consumers not taking advice, therefore potentially leaving themselves open to mis-buying.
To minimise the risk of poor consumer outcomes, my suggestion would be that all customers should be required to take advice from their lender or a broker before effecting any mortgage, including ‘simple’ product transfers.
Star Letter 19/10/18 posted by: Mortgage Solutions
|Our monthly residential market review is intended to provide background to recent developments in property markets, as well as to give an indication of how some key issues could impact in the future.|
HOUSE PRICES HEADLINE STATISTICS
HOUSE PRICES PRICE CHANGE BY REGION
AVERAGE MONTHLY PRICE BY PROPERTY TYPE – JULY 2018
Source: The Land Registry
Source: UK Finance