What is a deposit?

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A deposit is a sum of money you will pay when purchasing a property (in conjunction with a mortgage). Therefore, your deposit plus the mortgage, will equal the purchase price.

 

Do I have a big enough deposit?

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Generally speaking, the bigger your deposit, the easier it is to get a mortgage and the better interest rate you will get. The minimum deposit that can usually get you a mortgage would be 5%. First time buyers usually find it more difficult to put down a sizable deposit, often relying on gifts from parents and other family members.

 

Loan to Value (LTV)

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Lenders will calculate your loan to value (LTV), which often determines the products available to you. For instance, if you were to borrow £200,000 with a deposit of £38,000 (borrowing £162,000), your LTV would be 81%. If the deposit was increased slightly to £40,000, this would reduce the borrowing amount to £160,000, and the LTV would drop to 80%. This would likely reduce the interest rate as lenders have different rates at 70%, 80%, 90% LTV. It is important to discuss your deposit with your advisor as you may be able to reduce your rate by only increasing your deposit by a small amount.

 

Getting a mortgage with a small deposit

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There are mortgages available for at 95% LTV, however these tend to be a higher rate of interest and applicants must fit lenders’ strict criteria. In these cases, the advice of a mortgage adviser is more important as mortgage options can be very restricted.

 

Affordability check

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Lenders will start by assessing your income. Their methodology for this assessment will differ depending on whether you are employed, self-employed, contractor, etc. Many lenders will also include other forms of income, such as secondary jobs, overtime, commission, benefits, etc. Most lenders will multiple your income up to 4 or 5 times, however a select few lenders will be able to lend up to 6 times your income (providing you have a good credit history and meet minimum income criteria). Lenders will also investigate any monthly outgoings, debts and other credit commitments to ensure interest payments can be made. These include:

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Monthly outgoings

• Council tax

• Transportation costs

• Insurance

• Ground rent

• Utility bills

• Entertainment costs

• Child costs

 

​Debts

• Secured loans (e.g. other mortgages)

• Un-secured loans (e.g. personal or student loans)

• Credit card payments (e.g. overdraft)

• Hire purchase (e.g. purchased car on credit)

 

Before taking out a mortgage, you must also consider other additional costs, such as:

• Solicitors fees (approx.. £500 - £1500)

• Valuation fees (approx. £300 - £1500)

• Survey fees (approx. £300 - £500)

• Broker fees (approx.. £500 - £1000)

• Stamp duty Land Tax (depends on property value)

• Mortgage application fees (approx.. £500 - £1500)

• Land registry fees (approx.. £100)

• Local authority searches (approx. £500)

• Costs associated with moving properties (approx.. £500 - £1000)

 

*All these costs are estimates and will depend on your circumstances.​

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Application in principle

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Once a realistic borrowing amount has been decided and a lender has been identified, an application in principle is made. This is not a legally binding document from the lender, but it is an agreement to grant a mortgage based on the information provided. This provisionally lets you know how much you can borrow, subject to finding a suitable property in a specified time, usually 30 days. It is a relatively quick process to receive an AIP as lenders only require basic information, while also conducting a soft credit check.   

 

Mortgage Illustration and Certificate

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A mortgage illustration (ESIS) is a document which outlines all the key facts and details relating to your mortgage. Your mortgage broker will talk through this document with you to make sure you understand every aspect.

A mortgage certificate is also issued by your broker, which confirms an application in principle has been issued and the applicant has funds to make a purchase. You can use this document to provide evidence to an estate agent before making an offer.