In this video, we’ll be talking about deposits. When it comes to buying a property, the bigger your deposit, the higher chance you’ve got of being accepted for a better interest rate.

 Lenders can potentially lend you more money the more deposit you have to put down. They do this because people who have a small deposit are classed as higher risk than someone who has a much larger deposit. 

So, what is the deposit? A deposit is a lump sum of money that you need to put down when buying your first property. The minimum you can put down is a 5% deposit. So, for example, if you’re buying a property at 300,000, you would need to put down a minimum of 5%, which should be your 15,000, and the amount you would need as a mortgage would be £285,000

As just discussed, the minimum you can put down is a 5% deposit as a first-time buyer. So, although 5% is the minimum, there are plenty of benefits and reasons as to why you should put down more of a deposit if it’s within your budget.

 The first reason you should put down more of a deposit is that you qualify for better mortgage deals. The more of a deposit you put down, the less risk you are for the lenders. Because of this, you are eligible for cheaper interest rates and, in turn, smaller repayments. 

Not only will your repayments be lower because you have a lower interest rate, but because you are borrowing less due to putting down a more significant deposit, your monthly repayments will tend to be lower.

Last but not least. Another benefit of putting down a higher deposit is that it makes it easier to get a mortgage offer. Lenders that will allow you to put down a smaller deposit tend to become more strict on your credit score. So, for example, your credit score would need to be squeaky clean with a 5% deposit; however, when you have 15%+, it can become easier.

Where can your deposit come from?

The most obvious sources of your deposit are savings and investments. Lenders and solicitors tend to want to see a six months build-up of your savings and investments, so they can see exactly where the funds are coming from and make sure that it’s coming from a legit source. 

Another source of funding for your deposit is the bank of mum and dad. So, with house prices getting ever more expensive. First-time buyers struggle to save the initial deposit for getting themselves on the property ladder. 

You can get something known as a gifted deposit where a parent, grandparent, or family member can gift you the money towards buying your first property. If you’re lucky enough for your family to help you out financially with your deposit, one of the requirements from their lenders is that you have completed a gifted deposit form or letter. This letter would detail that the money they have gifted to you is a gift and not a loan and it does not require any repayments and that the gifter holds hold no interest in the property.

 A little-known fact is that there are lenders out there that can accept a personal loan as a deposit. Only a few niche lenders will allow you to do this.

They would also need to assess if you used a loan as a deposit because the mortgage is affordable with the new loan payments. For example, the loan payment you’ve taken out is 400 pounds a month. The affordability for the mortgage would also need to stack up, including that 400 pounds in their affordability calculators.