If you’re thinking about buying your first home, there’s one question you need to ask yourself: what kind of deposit do I need to buy a house?
A deposit is a lump sum you pay upfront, letting you own part of the property outright. It gives the seller reassurance that you are serious about the purchase. The bigger the deposit, the better deal you are likely to get on your mortgage.
Your LTV is the percentage of your property that is mortgaged, compared to the overall value of your home. The lower your LTV, the larger the proportion that you already own.
For a mortgage with The Cumberland it is now 5%, as we have recently reintroduced 5% mortgages, where previously the minimum amount was 10%.
It's giving people a bit more flexibility, if they haven't saved as much or they haven’t got as much savings or want to keep some back. The difference can be quite high, between 5 and 10%.
Moneysavingexpert.com and which.co.uk both have useful mortgage deposit calculators and your mortgage advisor will help you.
Chloe says: “If we get a customer who's potentially got no savings at the moment, it's not that we can't run through an affordability check with them, because we can give them what the loan amount would be and we can work out based on what our current loan-to-value maximum would be.
“If we can lend them X amount I can say to them, for 5%, you need to save this much and then you need to save additional funds and they've got a target that they can meet.”
Not for new build properties at The Cumberland which require a 15% deposit.
Adam Todd - mortgage and protection advisor at The Cumberland explains: “It's like buying a new car - when you drive it out of the garage you've just lost five grand in value. It's potentially the same with a house.
If you buy a new build for £200,000 once you've bought it it's no longer new and there is a worry that that property could decrease in value.
“If you then wanted to sell that house in two years’ time and your house is now only worth £180,000 you might not be able to sell it for enough money to pay off your mortgage. So we ask for a bigger deposit to make a bigger gap between what they owe The Cumberland and what the house is worth.
“You can't really improve a new build. It's quite hard to add value because it's already really good to begin with.”
Adam says: “The Cumberland will encourage people to go for 5%. It depends on how fast they can save and how soon they want to move into their home.
“If they are not in a massive rush and can afford to wait and keep on saving then a 10% deposit will get them a better interest rate.
“That said, if someone's renting, what's the point paying another £500 a month for the next year, so that’s £6,000 you've spent when you could have moved into a house, taken a higher interest rate and started paying that money against your mortgage.”
Interested to find out more about saving? Check out our article on ‘How to save for your first home’ or get in touch with any questions. We’re always happy to help.