Purchasing your first home is undoubtedly an exciting experience, but for many people, the process of navigating through the financial intricacies can seem overwhelming. A major concern for most first-time buyers is the deposit required to buy your property. So, to help keep you informed, this article will go over how much of a deposit you’ll need as a first-time buyer and we’ll also discuss how shared ownership can help lower your deposit.
Deciphering Deposits as a First-Time Buyer
When it comes to purchasing your first home, you’ll be expected to provide a deposit. A deposit for a house is an upfront sum you pay when purchasing property. It's a percentage of the home's total cost and represents a commitment on the buyer's part. Aside from decreasing the mortgage amount you'll need, it also shows lenders your reliability as a borrower.
Upon making your deposit, the remaining price of the property is usually covered by a mortgage. This is a long-term loan secured against the home's value. The higher your deposit, the less you'll need to borrow, often leading to preferential mortgage deals and reduced monthly payments.
How Much of a Deposit Will I Need as a First-Time Buyer?
Generally speaking, first-time buyers in the UK can expect to provide a deposit ranging from 5% to 20% of the property's cost. However, aiming for 10% or above is often deemed ideal. Remember - if you provide a bigger deposit then you’ll be able to enjoy better terms for your monthly mortgage payments.
With all of that said, there are several factors that could impact how much deposit you’ll be expected to pay. These factors include:
- Property Price: Higher property costs naturally mean a larger deposit in monetary terms.
- Loan-to-Value (LTV): Lenders utilise this ratio to determine the relationship between the amount you aim to borrow and the property's price. A lower LTV typically means superior mortgage rates but necessitates a heftier deposit.
- Credit Score: A robust credit score might sometimes mean you can put down a smaller deposit, as lenders perceive you as a trustworthy borrower.
- Shared Ownership: If you make use of the shared ownership scheme, then you’ll have a smaller deposit to pay.
- Market Climate: In thriving market scenarios, lenders might present attractive deals with reduced deposit prerequisites.
Shared Ownership for First-Time Buyers
Shared ownership is a useful scheme that makes it easier for buyers to get on the property ladder. Under this scheme, you purchase a share of a property (usually between 25% and 75%) and pay rent on the remaining share of the property, which remains under a housing association or developer's ownership.
The advantage? You only need a deposit for the part you're buying, so it’ll be much smaller. For instance, if you're purchasing a 50% share of a property priced at £200,000, you'll need a deposit only for the £100,000 portion. So, you could pay a 5% deposit of £5,000. However, shared ownership isn’t suitable for everyone and the terms and conditions of the scheme apply. So make sure you learn about eligibility for this scheme to find out if you can benefit from it.
Save for Your Dream Home Today
Saving a deposit for your dream home is difficult, but learning how it works and how government-backed schemes like shared ownership can help is a great way to make things easier. So, with a little bit of research, you’ll find that owning a home in the UK can become a reality.
To learn more about shared ownership, or to get help finding your first home, then get in touch with our team at Sanctuary today.