What options do I have if I have a low deposit?

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What options do I have if I have a low deposit?

What options do I have if I have a low deposit?

Rohit explains what mortgage options you have if you have a low deposit.

Can I get a mortgage with a 5% deposit? How does it work?

Yes, and there are a lot of lenders out there offering a 5% deposit mortgage, especially those that signed up to the government’s Mortgage Guarantee Scheme.

There are also lenders who will offer a mortgage with just a £5,000 deposit. If you’re thinking about buying a house of up to £500,000, that’s effectively a 1% deposit.

So there are options out there if you have a low deposit – but you need to be aware that interest rates could be higher. It therefore costs you more per month, the less deposit you put down. It’s good to have an understanding around your budget before you enter a mortgage with a low deposit.

What are the requirements of getting a mortgage if I have a low income?

Your income is ultimately what determines how much a lender will lend you. A low income doesn’t stop you from getting a mortgage income. It really just means that you won’t be able to borrow as much when the lender assesses your circumstances.

If you have low income, it’s worth thinking about some of the innovative schemes from some lenders. These may allow you to use support from your family – and in some cases friends – to boost how much you could borrow.

If you go down that route, it does mean that those family members or friends also become responsible for your mortgage. If you can’t pay, they will need to step in – so they will need to take legal advice about that.

But it’s an option to consider. Listen to our podcasts around Joint Borrower Sole Proprietor or Guarantor Mortgages as well to understand more about that.

What low deposit schemes are available?

There are some good schemes if you have a low deposit. For example, there’s a scheme called Deposit Unlock, where you could buy a new build home with a 5% deposit from participating builders.

You also have a scheme called Own New where builders will use the usual incentives or discounts to actually reduce the interest rate of your mortgage. It may mean the lender lets you borrow a little bit more, as your monthly payments will be lower for the initial five years of your mortgage.

Finally, we’ve got the Shared Ownership scheme which has been around for a long time now. It’s still a great way to start buying your own home if you have the right circumstances [podcast recorded in July 2024]

What do you do if you don’t have a deposit? Can you get a mortgage with no deposit?

Some lenders could consider a no deposit mortgage. For example, Skipton’s Track Record Mortgage could be an option if you have been renting and have kept up with your payments and other commitments.

Because you’ve been a good tenant, they may offer you a mortgage without needing a deposit. It’s all down to affordability assessments, but that is one of the schemes out there. They’re few and far between, but there are some options available if you don’t have a deposit.

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We’ll help you compare mortgage offers from different lenders and find the one that’s right for you. We can also answer any questions you have about the mortgage process and help you understand the paperwork.

Can my parents lend me money for a house deposit?

Some lenders would allow your parents to lend money to you for your deposit.

For example, Generation Home’s deposit booster product is a great way to do this. They will set up a legal contract so you could pay your parents back – or your parents could change their minds and gift you the deposit at a later date. Other lenders aren’t happy for your deposit to be a loan.

But most lenders will accept it if your parents or grandparents gift you the deposit. They would be required to sign some paperwork that says that it is a gift and there’s no repayment required.

Can I get a mortgage if I have a low deposit as a First Time Buyer?

A lot of the low deposit mortgage schemes are targeted towards First Time Buyers. If you are a First Time Buyer and you’re starting to think about getting onto the property ladder, look at some of those schemes and speak to a broker to understand how they work.

Can I get a mortgage with a low deposit if I have bad credit?

Most lenders prefer a bigger deposit if you’re applying for a mortgage with bad credit. Once they see that you have had some issues on your credit portfolio, they feel that the risk is a bit greater. A bigger deposit will be more reassuring to them.

But it’s still possible to get a good mortgage deal. It just means that you probably need the help of a mortgage broker to sort that out.

Can you get a Buy to Let mortgage with a low deposit?

We get asked this quite often, but Buy to Let mortgages are different to normal residential mortgages.

They are effectively seen as a business venture, and therefore, lenders expect you to have a higher deposit. They’re treating it more as an investment rather than somewhere you’re going to live.

The standard deposit for Buy to Let is usually 25%. Some lenders that might lend you a little bit more – we might be able to get a 20% deposit, but it does depend on your circumstances and your background.

Do you have any tips for people with a low deposit?

There’s a number of things that people with a low deposit could do. Bear in mind, I’m not a financial advisor, so it’s worth speaking to a qualified advisor first.

But if you qualify for a lifetime ISA, you should think about opening one. By doing this, you could potentially get a 25% bonus each year for every pound that you save, up to £4,000 when used as a deposit to buy your home. It’s a massive gift from the government to help you get onto the property ladder. So that’s one thing you could have a look at.

We always advise our clients to make a plan and a budget. Review your spending, look at ways you could save a little more to boost that deposit. But it’s also important not just to cut everything out. If you can’t meet your budget plan it makes it really hard to achieve your goals. You need to leave yourself room to treat yourself and still have nice things occasionally.

We also suggest keeping an eye on your credit score and doing the right things to maintain or improve it. Also, as we talked about earlier on, it’s worth considering those schemes – they could be a great way to help get you into your first home.

How can a mortgage broker help if I have a low deposit?

A good mortgage broker will work with you over the long term to help you achieve your goals. That’s what we do. We’ve had people come to us and we’ve worked with them for 12 to 18 months to get them mortgage ready.

We help them understand their budget and look at where they’re spending. By suggesting some tweaks, they could boost their deposit over a period of time.

Then we check in with them regularly. We become a ‘critical friend’ over the following months to see how they’re getting on with their plan – and give them some motivation to continue.

It’s absolutely brilliant to help someone from the very beginning, when they think it’s impossible for them to buy their first home, and just months later they tell us they’ve picked up their keys and they’re moving in tomorrow. It’s wonderful.

Your home may be repossessed if you do not keep up repayments on your mortgage.

Some buy to let mortgages are not regulated by the financial conduct authority.