If you have decided that 2022 will be the year that you finally find yourself on the property ladder and become a first-time buyer, you may have found yourself asking: How much deposit do I need for a house? It can be difficult to provide a universal answer with geographical location, property type, and asking price just some of the underlying factors that must be considered but by familiarising yourself with the following information, you can proceed with a rough ballpark figure and start saving towards securing your first home sooner rather than later.
The minimum amount
If you are wondering: How much deposit do I need for a house? It may benefit you to familiarise yourself with the minimum amount needed to become a first-time buyer. In today’s increasingly crowded property market, the minimum amount you’ll need to become a homeowner is 5% of the entire value of the property you intend to purchase. The remaining 95% will then be supplied by your mortgage lender. If you are currently in the process of searching for suitable properties in your local area, it may be worth taking the time to determine the average house price for the type of property that you would, ideally, be looking to purchase with the average house price in the UK currently sitting at around £272,992 as of 2022 which would require a 5% deposit of £13,649. This can allow you to arrive at a rough ballpark figure so can safeguard your first home and stop asking: How much deposit do I need for a house?
The bigger the better
If you are a first-time buyer, it may benefit you to spend a couple of years boosting your savings so you can submit a bigger deposit. It can be tempting to get lost in the excitement of buying a home and submitting a mortgage application sooner rather than later but by accumulating your savings over time, you may be able to capitalise on a number of incentives. This includes cheaper monthly repayments with a bigger deposit usually lowering your risk to mortgage lenders and, as a result, boosting the likelihood of them providing you with a lower interest rate and your mortgage repayments and interest rate combined resulting in you paying less in monthly repayments every month. In addition, a bigger deposit will also result in you owning a greater portion of your home from the onset with lower interest rates also leading to greater equity every month and, therefore, avoiding a number of common problems that can arise in the event that you fall into negative equity.
The LTV
It is a common concern to ask yourself: How much deposit do I need for a house? It may, however, be worth familiarising yourself with the loan-to-value ratio, or LTV, ahead of time. This is, in the very simplest of terms, the process of determining the amount you intend to borrow compared to the value of the property. If the LTV falls below 80%, for example, the vast majority of mortgage lenders will offer applicants the lowest possible interest rate. If you can, you must aim for a low LTV with under 80% usually the most favourable position to be in to significantly lower your interest rate with mortgage lenders taking on less risk as a result. It does, however, require a substantial deposit beforehand. If the property you intend to purchase has been valued at £250,000, for example, a £20,000 deposit will provide you with an LTV of 92%. This is because the amount that you have borrowed, in this case £23,000, is 92% of the property’s total value.
The hidden costs
It may seem enough to ask yourself: How much deposit do I need for a house? It might, however, also be worth familiarising yourself with the hidden costs of becoming a first-time buyer with a growing number of homeowners failing to consider this important element during the process of searching for a suitable property. This includes survey costs, solicitor and conveyancer fees, building insurance, stamp duty, valuation fees, mortgage arrangements, removals costs, and, last but certainly not least, the collective cost of furnishing and decorating a brand-new or unfurnished property.
If you have decided to finally set foot on the property ladder and become a first-time homeowner, you may have asked yourself: How much deposit do I need for a house? It can, however, benefit you to familiarise yourself with the minimum amount that may be needed to submit a mortgage application, boosting your savings so you can submit a bigger deposit with the bigger the better, the LTV or loan to value ratio with the amount you intend to borrow compared to the value of the property impacting your ability to purchase a home, and the hidden costs involved.
If you are planning to submit a mortgage application in the near future or just require the advice and guidance of a professional team of mortgage experts, get in touch to arrange a call today!
