How much deposit do you actually need?

In relation to first time buyers, this would have to be the most frequently asked mortgage related question we receive on a weekly basis.The answer is not as straight forward as it would seem, so lets break it down a bit further.

If I were to be asked what is the minimum deposit required, well typically its 10% with a few lenders offering a product at 90% Loan to Value (LTV). There tends to be some conditions attached to these products; essentially these can include being an existing customer or only being able to go to the lender directly to arrange the borrowing. I have today noticed an even smaller number offering a 95% LTV proposition.

The important thing to remember here is that the rates offered are not going to be as attractive as having a larger deposit (See my post relating to the HSBC discounted rates) as the risk to the lender is higher. Secondly the criteria required is going to be more strict so you might not meet the lenders requirements for that product in any case.

Moving on, it’s fair to say that should you be able to stump up a 25% deposit, then you are going to have to access to much more of the market and therefore better deals, giving you more choice. A 40% deposit will give you access to the whole market and well it doesn’t get any better than that regarding your options!! Higher deposits not only mean better rates, but it actually means borrowing less and with these two factors it equates to lower monthly costs, common sense I know, but a point often missed!!

As you can see the answer to the question proposed is the old adage – bigger the better!!

To finish, let me dispel a myth surrounding mortgage brokers and Independent Financial Advisers. This myth is that we cannot source deals only available by going directly to the lender. This is not true, we can source the deals, we can even check that a client meets the lender’s criteria (an essential step in recommending a mortgage product), however the lender(s) won’t deal with the broker with these products, you have to deal with them ‘directly’ over the phone or go into a branch. As a side point, there are loads of people that use the internet to source mortgage deals and this is fine until something goes wrong or you find out that for some reason you fail to meet the lender’s requirements. A broker will always check the best rate available to a client that meets the lenders criteria. If a client doesn’t meet the criteria, then that product was never available to them, it really is a case of matching the two things – rates and eligibility.

I will discuss criteria and eligibility in more depth in a future post – this is a big reason why some clients are declined mortgages and not because of bad credit!!