Getting on the property ladder is hard! With at least 5% of the property value required to get a mortgage and average house prices in the UK currently standing at over £220,000, it’s a pricey endeavour.
So it’s tempting to consider taking out a loan to fund a mortgage deposit and you may already have looked at this as a serious option.
There are no lenders, at the time of writing, who promote mortgage deposit loans. And that’s because of the concern over affordability.
Let’s say you buy a house at the average price of £220,000. That means the deposit you need is £11,000 (plus all the fees associated with buying a house).
Taking out a relatively large unsecured loan for £11,000 could leave you with a sizeable repayment each month, which reduces the affordability of your mortgage repayments.
On that basis, many lenders will ask you to prove the source of your deposit.
Alternative Sources for a Mortgage Deposit
- The Help to Buy ISA from the Government allows you to save, with the Government topping your savings up by up to 25%. This is an ISA specifically designed for purchasing a property
- A gift from a family member. Some lenders will ask your family member to sign a declaration that the money is a gift and not a loan
Other Fees to Take into Account
If you are saving for a mortgage deposit, don’t forget about the additional costs:
- The best interest rate mortgages typically have fees of £900+. These fees have to be paid, in most cases, before you complete on your new home
- Lender’s valuation fees. You have to pay a fee for the lender to have the home valued before they can approve you for a mortgage on it. This can cost £250 – £400 for the basic valuation
- Conveyancing fees. Conveyancing often costs over £1,000 not even including….
- Stamp duty! On a property at the average price of £220,000 the Stamp Duty would be £1,900 as it currently stands. This would have to be paid within 30 days of completion
- Moving costs – physically moving from one home to another!
The above, as the minimum, are fees you should be saving alongside your deposit.
