People taking out mortgages for the first time generally have small deposits available but, in order to get the most favourable deals, it is best to have a deposit of 25 percent or larger. Usually, the smallest possible deposit that will be accepted by a lender is around five percent.
Having a much bigger deposit of 30 to 40 percent or more makes it possible to qualify for mortgage deals at the cheaper end of the market, because you do not need to borrow a very large proportion of the value of a property. From the lender’s point of view, this means the company will be able to recover most of the money you borrowed if you run into financial difficulties and lose your home.
Understanding mortgage options can be baffling for first-time buyers and a qualified adviser who has trained on a CeMAP course will be able to help you weigh up your choices.
A 100 percent mortgage enables you to borrow the value of your house in full, with no need for a deposit, but there is a risk that the value of the property could fall, pushing you into negative equity.
The Help to Buy scheme enables you to buy a home with a 95 percent mortgage and a small deposit of five percent, and is available to first-time buyers. Standard 95 percent mortgages normally require you to have a decent income and credit score. They have higher interest rates than 90 percent mortgages, which are the option most commonly chosen by first-time buyers and which require 10 percent deposits.