There are a host of steps to take before you reach that cathartic stage of packing everything up and moving into your new home in Torbay . Even before you start the thrill of house hunting, finding your dream home and making an offer, you will need to deal with the logistics, and the first logistic is saving up for your mortgage.
What is the Minimum Deposit?
The absolute minimum deposit you can put down on a property is 5% of its value, but this can go further with a Help to Buy Scheme wherein the government provides either 20% or 40% of the property’s value to offset your mortgage rates.
As you can imagine, the minimum deposit will often mean you end up paying more throughout your lifetime than someone who has a greater deposit than 5%, and this is because with a larger deposit you will have more leveraging power and buying power, making you a more attractive choice to mortgage lenders.
How Much Deposit Should You Put Down?
The minimum deposit is 5%, but the recommended amount is instead between 15% to 20% of the property value, as this will give you the ability to enjoy many benefits which is why it is wise to invest in a higher deposit.
Eventually you want to own your home in Torbay outright. This is the best possible scenario but of course due to the cost of buying a house this can take a number of years so it is highly likely that you will need a mortgage. With this in mind, a larger deposit is the best choice for all types of buyers, and there are many reasons to save up that higher amount:
You Have a Better Chance of Being Accepted
You are not guaranteed a mortgage, and if you intend to only put down a 5% deposit then your lender may decline. This is because they often only offer a loan that is three times your annual salary. The higher your deposit, however, the less this will become an issue.
Lower Monthly Repayments
You have more freedom in setting the terms of your mortgage when you have a high deposit. You could opt for a higher repayment plan with a lower interest rate, for example, or you can make your repayments lower and more affordable every month.
Better Mortgage Interest Deals
Currently, you are likely to get better interest rates when you put down a larger deposit. This means that the bigger your deposit, the less you will pay in total overall. With the minimum deposit, banks will likely offer you a higher interest rate due to the increased risk on their investment.
You Are Less Likely to Fall into “Negative Equity”
The reason there is a higher risk with a small deposit is because you could fall into what is known as negative equity. Many factors can bring down your property’s value to lower than you originally paid for it and in this case, even if the bank repossesses your property, they cannot make back their initial investment making it a higher lending risk.
Help to Buy
It is crucial to understand Help to Buy, which is a government scheme designed to help first-time buyers of new properties to own a home of their own. Full information can be found on the government website.
Help to Buy: Shared Ownership
Shared ownership is available if you cannot afford the full cost of buying a new home. Instead, this programme buys a share of the property (between 25% to 75%) and you pay rent on the rest. As things improve you can then buy bigger shares in the property.
Help to Buy: Equity Loan
The Help to Buy: Equity Loan is available throughout the UK with the exception of London. In this scheme, the government lends you 20% of the cost of a new build. This way, you can pay the 5% deposit and still benefit from a 25% down payment. Additionally, you won’t be charged fees on your Help to Buy loan for the first five years.
Help to Buy: Equity Loan London
London housing prices are reflected in the Help to Buy: Equity Loan London programme, where the government increases the loan percentage from 20% to 40%. The rest of the programme works the same.
Understanding the minimum deposit you need to save is a great first start, especially if you plan on using the Help to Buy programmes to secure yourself a new home in Torbay . Of course, if you want to further improve your mortgage rate and monthly repayments it is always best to try to save as much as you can for your deposit.
For expert advice on all things property related, contact the team at Ridgewater Sales and Lettings on 01803 525100 today.