In his latest Ask the Expert column, Darren Polson offers advice to a first-time buyer on how to maximise their deposit and improve their affordability
The Question
I have saved £22,000 but I still don’t have enough deposit for my first-time property. I am on £28,600 per year, and I am single. House prices in my area are ranging from £140,000 to £180,000. What should I do?
I am looking at paying £750 to £800 per month rent on a one bed flat. Do you have any advice on how I can improve my deposit or my chances of buying a home?
Darren’s Answer
Firstly, saving £22,000 for a deposit is great and shows your desire to get on the property ladder!
Many lenders will accept deposits as low as 5%, which would be between £7,000 and £9,000 given your property range noted above.
Remember, if you offer more than the value of the property, you will need to fund this yourself as lenders will only lend against the market value of the property. For example, if the home you buy is valued at £150,000 and you are putting down a 10% deposit, this will be £15,000 deposit and £135,000 as a mortgage.
However, if you buy this house for £160,000 (£10,000 over valuation), you will need to pay the extra £10,000 in addition to your deposit of £15,000, essentially meaning your initial outlay is £25,000 and your mortgage is £135,000.
The higher the deposit, the better the loan-to-value (LTV), which normally means the better the interest rate.
Based on your salary details you would ideally want another £5,000 to £8,000 for your deposit given the average house prices in your area, this will help with your affordability and also ensure you have enough funds to cover other essential costs such as legal fees and moving fees.
Make your savings work hard
Initially, it is important to maximise your savings rate. Have a look across the market and ensure you are getting the best return on your savings. This may not seem much, but it soon builds up and there are some good rates out there just now.
Spend wisely
Keep your outgoings tight. You have to live and enjoy life, but make sure you are setting a weekly budget and give yourself as much scope to save where possible. That way you can boost your saving balance each month from your salary.
Other options to consider
You might want to look at a guarantor mortgage or a joint borrower / sole proprietor mortgage where a parent (or sometimes family member) can go on to the mortgage with you.
This would help your affordability as both salaries would be considered. Be aware that these mortgages can be complex and legal advice is always advised.
Alternatively, many lenders will accept a gifted deposit if that is something you have looked into.
Lenders are always looking to innovate and support the market. Also, there may be new schemes introduced by the government to help.
Whichever route you end up going down, it’s vital to make sure you’ve explored all the options thoroughly. An experienced mortgage broker can be with you every step of the way.
Meet our expert…
Darren Polson is head of mortgage operations at Aberdein Considine. He has been writing a regular column for What Mortgage for over two years and is now here to answer YOUR questions.
If you have a question for Darren please email kate.saines@emap.com or leave a message in the comments below.
