Regardless of whether you are a first time buyer buying your first home or an existing homeowner moving home, you will likely need a deposit.
Whilst savings is often seen as the main form of deposit, it isn’t the only way. In this blog we will explore some alternative ways of funding your deposit for your property purchase.
Savings – How can I boost my savings?
Saving up for your deposit demonstrates to a mortgage lender your ability to save money and manage your finances. However, you want to make sure you are fully maximising your savings where possible.
If you are a first time buyer, you may be eligible for a Lifetime ISA (individual savings account). Or you may already have a Help to Buy ISA open (it is no longer possible to open these). One of the main benefits of these accounts is that the Government provides you with a bonus to top up your savings which can help towards your property purchase.
However, there are restrictions to both the Lifetime ISA and Help to Buy ISA so make sure you will meet the eligibility requirements for the bonus. You can find out more about the Lifetime ISA here (insert link: https://www.gov.uk/lifetime-isa).
Gifted Deposit – Bank of Mum & Dad
Many mortgage lenders will allow family members to help you with your deposit providing they are ‘gifting’ you the funds rather than loaning you the money. However, mortgage lenders often stipulate that the gifted money needs to be from a close family relative (i.e. parent, siblings, grandparent) rather than a friend and will often need to sign a declaration that it is a true gift which is not repayable.
With soaring property prices, many first time buyers are using the ‘Bank of Mum & Dad’ to help them boost their deposit and get on the property ladder sooner. It is important to make sure you declare to the mortgage lender at mortgage application stage if part of your deposit is a gift and who it is from. Your conveyancer/solicitor will also need to be aware so they can complete any necessary checks as part of the legal element of your purchase.
Equity from sale of your existing property
If you are an existing homeowner who is looking to move, it is likely you will be selling your current home and have equity in your property that can be used towards the deposit for your new property.
Equity is the difference between your outstanding mortgage balance and the property value or sale price.
However, remember to deduct any fees related to your sale and purchase (e.g. legal fees) if you are also using the equity to fund the associated costs incurred when buying and selling a property.
An experienced mortgage adviser like The Mortgage Pride, will help ensure you understand the associated costs you may incur so you can budget for these accordingly.
Gifted equity – Buying a property from a relative or your landlord
If you are buying a property from a relative of your landlord, they may offer you the opportunity to purchase the property at a reduced or discounted purchase price rather than full market value.
The good news is that some mortgage lenders will allow you to use this discount as a form of deposit. However, some mortgage lenders will still require you to fund some of the deposit from your own savings.
The Council Right to Buy and Housing Association Right to Acquire schemes are examples of gifted equity.
Not all mortgage lenders will offer mortgages where a gifted deposit is involved in the purchase so it is always recommended you seek advice from a whole of market mortgage broker such as The Mortgage Pride to ensure you are matched to the most suitable mortgage lender for your personal circumstances.
Director’s Loan
If you are a limited company director and a shareholder, it may be possible to have a director’s loan from your company to fund some of your mortgage deposit. This may be recommended by your accountant or tax adviser rather than withdrawing the funds as a dividend. However, it is important to seek advice from a qualified tax adviser if you are considering these options so you understand any tax implications.
Personal Loan
Some mortgage lenders will allow you to take a personal unsecured loan to fund your mortgage deposit. However, this will limit your mortgage options as not all mortgage lenders are happy to accept this as a form of deposit. It is also likely to reduce the amount you are able to borrow when compared to other forms of alternative deposit as mortgage lenders will include the personal loan repayments as a financial commitment for mortgage affordability.
100% Mortgage – Track Record Mortgage
May 2023 saw the return of the no deposit mortgage from Skipton Building Society. The ‘Track Record Mortgage’ is aimed at helping renters who are age 21 or above, with a track record of paying rent but do not have a 5% deposit, get onto the property ladder.
The good news is that provided you haven’t owned a property in the UK in the last 3 years, you don’t necessarily need to be a first time buyer to access the Track Record Mortgage.
The amount you can borrow for a mortgage depends on the rent you have paid and therefore this option may mean you are able to borrow less than if you have a 5% deposit. This type of mortgage is subject to enhanced criteria as they are allowing you to borrow up to 100% of the purchase price.
It is important to note that this information is correct on 09.10.2023 and this type of mortgage offered by Skipton Building Society can be withdrawn without notice at any time.
Advice you can trust!
The Mortgage Pride are a whole of market mortgage broker based in Stoke-on-Trent, Staffordshire who are experts in helping first time buyers and existing homeowners understand all their mortgage options for buying a new property. Our proven mortgage planning service has helped guide hundreds of clients safely through the homebuying process and secure the right mortgage for their personal needs and circumstances. You can be confident that our recommended and personal mortgage planning service will:
- Confirm how much you can borrow
- Confirm how much you can afford
- Explain how much deposit you’ll need and what you can use as a deposit
- Confirm how much your mortgage will cost you#
- Explain the house buying process
- Make sure you are aware of all the costs involved
- Recommend the right mortgage for you based on your personal needs and circumstances by accessing the whole of market
- Take care of all your mortgage and protection requirements without the need to speak to different companies and advisers
So if you are considering buying a property and want to benefit from the expertise of a trusted and recommended mortgage broker, get in touch with The Mortgage Pride today.
*Your home may be repossessed if you do not keep up repayments on your mortgage.