Before 2007, mortgages were ridiculously easy to get. However, this meant that people who couldn’t afford them were being granted them hence causing the credit crunch. This meant that lenders were forced to bring in 100% and even 125% mortgages which made it virtually impossible to get a mortgage. Eventually, the market resumed to its original state allowing lenders to relax and start offering 95% mortgages again.
As an experienced Mortgage Broker in Grimsby, we know that it can be difficult to save up for a deposit. It becomes even more infuriating if you have a family or are living in rented accommodation and want to move into your first home but cannot afford it. We always get asked questions about deposits and how much you need, and these more commonly come from First Time Buyers in Grimsby. We have put together a small collection of questions we get, we will try and answer them as best as we can:
Yes, putting down a higher deposit than 5% will greater your chances of being accepted. It could also lower the rate of interest that your lender offers you. This is because you are showing the lender that you can afford more than the minimum and you are presenting yourself as less of risk to them. Lenders’ products are offered in bands of 5%. 95% mortgages are the most expensive mortgages, followed by 90% mortgages, 85%, etc.
There are only a couple of situations where this is possible. The lender will take the monthly payment as another one of your credit commitments. Therefore, you will be granted a smaller mortgage as a result than the one you would have qualified for had you not borrowed the deposit. Lenders are not a big fan of this as you are basically borrowing 100% of the purchase price.
Yes, you will find that this is how most First Time Buyers in Grimsby make their way onto the property ladder. Gifted deposits mostly come from family member or friends. The person who has gifted you the deposit must confirm that the deposit is a gift and not a loan and they may need to produce ID and information of where the funds have come from. This is done for anti-money laundering purposes.
Surprisingly, without gifted deposits, the property market would be in pretty poor shape right now. Parents are understanding how hard it is to meet that 5% minimum deposit, so they offer a helping hand onto the property ladder.
Applicants will always need to provide bank statements to their lender. Lenders need to be sure that you will be able to pay recurring payments based on your payslips and financial outgoings and commitments. They also like seeing that you have saved up money and worked towards the deposit over a long period of time.
If you have had any large deposits into your bank recently, you will need to provide documents to evidence this. Even if you have sold a car, you will always need to show the lender the receipt and the amount that you sold it for, and this price must match the amount paid into your bank account.
Lenders also don’t like large cash deposits, especially if the deposit was made recently. The longer that the funds have been in your account, the easier the whole process gets.
Proving the source of the deposit (audit trail) can be the trickiest part of the application sometimes.
If you are selling a property, then the Memorandum of Sale given to you from the estate agent is your proof.
If you qualify for the Help to Buy scheme, it’s still a minimum of a 5% deposit. This can be topped up to 25% via the equity loan so you will obtain a lower rate mortgage. Remember that if you choose this option then 20% of the government is a loan that you will have to pay back. You usually get 5 years to pay it off, if you go past the payment date then you will start to receive interest on it.