Purchasing your first home is an exciting milestone on the journey to homeownership. But saving the all-important mortgage deposit can seem like a daunting task for many first-time buyers in Mansfield.
At Shaw Financial Services, our mortgage advisers fully understand the challenges of saving your first deposit. We provide tailored guidance at every step so you can confidently navigate deposit requirements and set yourself up for mortgage success.
In this in-depth guide, we’ll walk through the key considerations around deposits for first-time buyers. With a clear understanding of how deposit size can impact your mortgage, you’ll be in the best position to plan your savings and unlock the most suitable finance options.
Why is a Mortgage Deposit Needed?
Firstly, it’s important to understand why a deposit is required at all. When you purchase a property with a mortgage, the deposit contributes to the initial costs, whilst the mortgage covers the remaining amount needed. So whilst you borrow money, the mortgage lender still needs you to raise a substantial initial sum yourself.
This deposit demonstrates to lenders that you’re financially committed to the purchase. It also means if property prices fall, they have less risk exposure if you default. In essence, the bigger the deposit you put down, the lower risk a borrower you are deemed.
What’s the Minimum Deposit Required?
Most mortgage lenders will require first-time buyers to put down a minimum deposit of 5-10% of the property purchase price. However, the exact percentage can vary significantly between different lenders and mortgage products.
At Shaw Financial Services, we explain the specific deposit requirements of various lenders and schemes. We can source deals suited to your personal financial circumstances, identifying options for smaller deposits if needed.
For example, there are a growing number of 5% deposit mortgages being made available for first-time buyers via government-backed schemes. By exploring all avenues, we aim to find the most viable route to finance your first home.
How Does Your Deposit Size Affect Mortgage Rates?
Whilst the minimum deposit gets you on the ladder, the size of your deposit can have a major influence on the mortgage interest rates you’re offered by lenders.
Typically, the bigger deposit you have, the lower the interest rate lenders are likely to offer you. This is because you’re considered less of a financial risk if you put more of your own money down upfront.
With a large deposit of say 20% or more, you may be offered the very best rates on the market reserved for low-risk borrowers. Smaller deposits of 10% can still unlock competitive rates for first-timers.
At Shaw Financial Services we’ll clearly explain the relationship between your deposit and mortgage rates. That way you can weigh up rate savings versus deposit savings to make an informed decision around balancing both.
Creating a Savings Strategy to Reach Your Deposit
Saving up enough money to put down 5-10% of a property’s value is no easy feat. It requires discipline, focus and putting a smart savings strategy in place.
At Shaw Financial Services, we work with first-time buyers to create tailored short and long-term saving plans to build up their deposit funds.
We can provide budgeting templates to help you analyse your current outgoings and find areas where cutbacks can increase savings capacity. Setting incremental deposit goals and regular transfers into a dedicated deposit account prevents savings losing momentum.
We’ll also explore options you may not have considered. For example, if you have existing long-term savings, we could identify ways to access those early to contribute to your deposit. Reviewing expenditure on non-essentials can reveal quick saving wins.
For couples, we look at combining your incomes and coordinating savings timelines. We also take into account any external financial support available, like from family members.
Understanding Gifted Deposits
On the topic of family support – receiving a gifted deposit from parents or grandparents can be a huge leg-up for first-time buyers. However, strict criteria exist around deposit gifts, so handling this correctly is essential.
At Shaw Financial Services, we guide you through the process step-by-step to make sure any gifted deposit complies with lender rules. Key steps we assist with include:
– Having the giver confirm the gift funds in writing
– Verifying the giver’s source of funds and proof of affordability
– Ensuring the funds are transferred directly into your conveyancer account
By undertaking the right procedures, we can ensure gifted deposits positively contribute to your mortgage application rather than cause issues.
How Deposits Work for Shared Ownership
Alongside mortgage finance, shared ownership schemes offer first-timers a more affordable route to homeownership. This is where you purchase an initial share of a property, typically between 25-75%, and pay subsidised rent on the rest.
The great benefit is you only need a deposit to cover the portion your are buying. Shaw Financial Services can indicate the deposits required at each shared ownership level and walk you through the process if this is your preferred approach.
We’ll also explain how you can staircase up by buying further shares later and work towards owning 100% eventually. The deposit you put down initially goes towards the final purchase price.
Assessing Affordability Based on Deposit Size
A critical part of our service at Shaw Financial Services is undertaking detailed mortgage affordability assessments. We’ll consider your income, outgoings, debts and credit score to determine borrowing capacity.
Critically, we’ll also assess affordability across different deposit scenarios. For example, we could look at affordability for 85%, 90% and 95% LTV mortgages by inputting different deposit amounts.
This gives a clear view of the impact deposit savings can have on mortgage size, repayments and overall budget. It allows us to identify the optimal deposit amount you can raise whilst remaining comfortably within affordability limits.
In Summary
We hope this guide has provided useful insight into why deposits are required, how they influence your mortgage options and the key factors to address when saving your first deposit.
At Shaw Financial Services, we recognise that raising a deposit is often the biggest hurdle for first-time buyers in Mansfield. Our tailored, personalised support takes the stress out of saving and lets you focus on the excitement of purchasing your first home.
To discuss deposits or any other aspect of getting on the property ladder, please get in touch, and we’ll be glad to help.
