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Deposits and mortgages

Monday, 3 August 2015

clip_image002When you are looking to buy a house, deposits and mortgages go hand in hand because the size of your deposit will affect the size of your mortgage and therefore the amount you repay. This article explains how much you need for a deposit and how you can get the best mortgage deal.

As discussed in our property buyer’s guide article, a mortgage is a financial loan that is usually provided by a bank or building society and a deposit is required to get a mortgage. At the time of writing your deposit must be at least 5% of the property’s value and your mortgage provider would lend you the remaining 95%. However, this deposit amount is a minimum requirement and there are a number of reasons why you should save up for longer in order to put down a bigger deposit.

Mortgage lenders calculate whether or not you can afford a mortgage based on your income and your outgoings and you are more likely to fail these checks if you are providing a small deposit as your mortgage repayments will be higher. If you have saved up for a larger deposit your mortgage provider is likely to view you as a less risky client and they should offer you a more competitive deal. Saving up for a larger deposit means you will be borrowing less money and the smaller your mortgage is the cheaper the repayments will be. Additionally, if you own more of your property outright you are less likely to owe more on your mortgage than your property is worth. This is referred to as ‘negative equity’ which can make changing mortgage providers or moving home more difficult.

If you are thinking of buying a property and wish to calculate how much you will need for a deposit there are a couple of things you can do. You should research the local property market online which will allow you to work out what the typical asking price is for the kind of home you are interested in. You should also calculate how much you can afford to repay each month. If you work out that you can’t afford the repayments with a deposit of 5% you will know that you need to save up for a larger deposit.

At Rollingsons our residential property services covers all aspects of the property buying process. For more information or to arrange an initial consultation, please contact us on 0207 7611 4848.

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