For many first-time buyers, the most difficult part of getting on the property ladder is not the actual price of the property, but scraping together as much money as possible for the deposit.
A significant deposit can certainly help you to secure a mortgage – but if you are finding it impossible to afford a huge amount then all hope is not lost. There are still a few ways of getting a mortgage with a small deposit.
Help to Buy ISA
Whilst the interest on most standard savings accounts is dire at the moment, the Help to Buy ISA will actually give you a pretty good return on your investment.
Help to Buy ISAs are a government scheme and only available to first-time buyers. The ISA gives savers a 25% bonus on their savings so for every £200 you save; you’ll get an additional £50.
If two people are buying a home together, and are both first-time buyers, then each will be eligible for their own Help to Buy ISA, maximising the potential bonus available.
Low deposit mortgage
Most lenders will expect you to have at least a deposit of at least 10% of the property value; however there are lenders out there who are willing to lend to buyers with only a 5% deposit.
Low deposit mortgages tend to have higher interest rates so you will need to weigh up the pros and cons of buying now, or waiting until you’ve saved up enough money to afford a larger deposit.
Find a guarantor
A guarantor mortgage will allow you to obtain a mortgage using a small deposit, however there is a catch. The lender will expect a parent (or another family member or friend) to act as a guarantor on your behalf – meaning they will be liable for the remainder of the mortgage if you are unable to make the payments.
Obviously this reduces the risk to the lender, which is why they’d be more likely to accept a smaller deposit, however finding someone who is willing to take on responsibility for your mortgage will be no mean feat due to the potentially high risks involved.
Buy with a friend or partner
Taking on a joint mortgage can lessen the financial burden on yourself as you’ll be splitting the cost with someone else.
Buying a home together with a partner may be natural progression within a relationship, but if the relationship is purely a business one just for the purposes of obtaining a mortgage then you may need to set out some ground rules before going down this route.
SoSmart Money are specialists when it comes to mortgage and insurance advice. Our trained expert advisers have access to the UK’s leading lenders and using their knowledge and skills will place you with the most suitable leader and product for your needs.
The above post is intended to be informative but does not constitute advice – financial, legal or otherwise. Any opinions given are the author’s own and do not necessarily reflect the views of SO Media.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.