So, you’ve got a 5% deposit and are in the position to start making property offers, however, as you progress further through the process, you are finding that you may need a bigger deposit.
There could be lots of different reasons why you’re being asked for more deposit, it could be down to anything, e.g., sellers’ preference, buyer competition or your credit history/file.
Here we look at how you can use government schemes to help you make an offer with a small deposit as well as looking at simple things that you can do too.
There are many government schemes readily available on the market. These schemes come under an umbrella named ‘Own Your Home’ and can be utilised to help you move home in Nottingham.
These schemes could give you the extra boost that you need to get yourself onto the property ladder.
This scheme helps you increase your total deposit size, making up a total of 25%. This can heavily increase your chances of your offer being accepted.
When you take out a Help to Buy mortgage, you’ll have to supply a minimum of a 5% deposit, and your deposit will be topped up by the government to make a total of 25%. This ‘extra deposit’ that they give you is the ‘Equity Loan’. The Equity Loan is a loan and not a gift, therefore it will need paying back eventually.
The loan will be interest-free for the first five years, then afterwards, if there’s still a balance due, the remaining will start gaining interest starting at 1.75%.
You should know that this scheme can only be used on new-build properties and can only be accessed by first time buyers. Therefore, if you’re a first time buyer in Nottingham, we would recommend looking into the Help to Buy Equity Loan as it could give you that extra helping hand that you need!
The Shared Ownership scheme allows you to take out a mortgage based on a percentage share of a property (usually anywhere between 25%-75%) and then pay the rest back through rent.
As you are only taking out a mortgage on part of the property, your overall deposit required should be lower. Once you are settled in or perhaps in a better financial situation, you could even increase your share further if you want to. This is why this scheme can be such as good way to get you onto the property ladder.
The Shared Ownership scheme can get a little complicated in some places. This is why we’d recommend consulting with a mortgage advisor in Nottingham like us before getting started on your own.
A Lifetime independent savings account should be an ‘early on in the process’ thought. You should set one up once you’re thinking of moving or buying your first home in Nottingham.
The longer a Lifetime ISA has been set up, the more beneficial it will be; this is because it’s just a savings account. Your money will grow year on year; however, this is not due to interest, the government will top up whatever you save by an extra 25%. You can deposit as much as you’d like each month, as long as it doesn’t go over a total of more than £4,000 over the year. You can only save a maximum of £4,000 each year.
So after every year, you will gain 25% extra. If you manage to reach the maximum, you will have an extra £1,000 deposited into your independent savings account. The money that you’ve saved can be used for one of two things: to buy your first home or for savings for later in life.
If you set up a Lifetime ISA as soon as you starting thinking about moving home in Nottingham, you may only be required to put down a small deposit as the lifetime ISA will end up covering the majority of it!
Do you currently live inside a council house and are planning to make an offer on the property? If this is your situation, then you may only need to put down a smaller deposit, or in some cases not one at all.
You’ll discover that quite a lot of lenders will offer a right to buy discount. This discount is worked out by the government, they use factors such as how long you’ve been living within the property.
The 95% mortgage guarantee scheme was brought in off the back of the coronavirus pandemic during 2021. It gives struggling buyers the chance to purchase a property with just a 5% deposit.
Getting a mortgage application accepted is never guaranteed, however, through the use of this scheme, your chances could be significantly increased. Remember, during the whole process, you’ll still be required to pass credit checks, affordability assessments etc.
Besides using government schemes, there are over ways to get a mortgage with a small deposit.
To show your readiness to proceed through the mortgage process right away, you should get an agreement in principle (AIP) (also known as a decision in principle (DIP)). An AIP could be the thing that you need to boost your chances of getting a mortgage with a smaller deposit.
Having an AIP in place indicates that a lender is willing to lend you. Remember, this is only in principle of you being able to provide sufficient documentation to prove your mortgage affordability. When making an offer on a property with an AIP in place, you are potentially putting yourself in front of other’s who don’t have one.
You could say that in this scenario, it doesn’t really matter about the deposit, however, if you have a minimum of a small 5% deposit, having an AIP could give you that extra chance that you need. Having an AIP in place could be the difference between the seller choosing you over someone else. Choosing an applicant with an AIP over one who hasn’t got one can only speed up their process too!
An alternative would be to continue saving. Perhaps, you could postpone your home buying journey for just a little longer; this could maybe push up your total mortgage deposit.
Your ‘small’ deposit could become a much bigger deposit if you put your moving home in Nottingham journey on hold. Also, it could allow better rates and products to make their way onto the market.
We’ve even seen customers that are struggling to find a home that they’re interested in enough to make an offer on, but by waiting a little longer, they ended up finding their dream home!
Remember that the minimum 5% deposit will change depending on the property’s price. If you’re thinking of buying a larger home, you’ll likely need a bigger deposit anyway.
This situation is extremely specialist and not all lenders will not allow it. As a mortgage broker in Nottingham, we rarely see it happen, but when we do it’s always on strict terms.
In some situations, you can take out a loan to cover your deposit. This will likely affect your ability to get accepted as you are essentially borrowing 100% of a mortgage.
This means that you’ll have to pay two sets of monthly payments; your loan and your mortgage. You’ll be questioned on your affordability from the off front as they can’t risk lending to someone who has the potential to fall into arrears.
Remember that this is a specialist topic. As a mortgage broker in Nottingham, we would recommend that you speak to a mortgage advisor in Nottingham and contact us first. In all cases, taking out any sort of loan during the months leading up to your mortgage application is not recommend unless you’re certain that you can pay it off.