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Buying a home for the first time can be an exciting time. Whether you’re keen to get started on the property ladder or you’re looking to stop renting and buy a family home, knowing where you stand as a first-time buyer is a valuable starting point. Deposits or down payments are a vital part of paying your mortgage, so it's crucial to know the answer to 'do first-time buyers need a down payment?' when exploring your options.
We provide all the information you need to make an informed decision about your down payment as a prospective first-time homeowner below. From how these mortgages work to the amount you’ll be expected to place, we cover everything you need to know:
So, do first-time buyers need a down payment when they purchase a flat or house? In almost every case, the answer is yes. Most mortgage lenders have specific requirements for first-time buyers based on the additional risk this lending group can have. You'll likely have far fewer options if you search for a 100% mortgage for your first home, and you may find that specific options aren't accessible to you unless your circumstances align – such as having a guarantor in place.
It's also worth noting that your down payment helps lower your monthly payment. As a first-time buyer, you'll have plenty of costs to consider alongside your mortgage, from property tax to renovations and other financial requirements. The larger your down payment, the smaller your monthly mortgage payments may be, as you can see with any mortgage calculator.find me a mortgage
The process is slightly different when you get a mortgage for your first home, as you don't have another property to sell for your next mortgage. Instead, a cash lump sum deposit is used to cover a percentage of the cost of the property. This process is in place because the price of a home cannot typically be funded 100% through a loan. Instead, you contribute a portion to reduce the loan amount, which can also increase your affordability for larger or more expensive properties.
The size of the deposit you put down for your first home is entirely up to you, but the higher the amount you can raise, the better it is for your options and the cost of your monthly mortgage payment. Most lenders require a 10% down payment for most first-time buyers, though you may be able to find a few lenders that offer 5%. However, these options are scarcer due to the current financial instability.
Your down payment affects what mortgage you can get, as the amount you contribute reduces the remaining value of the property. Mortgage lenders use affordability tests to determine whether you can afford a mortgage, typically up to 4.5x your combined annual income, which can affect the amount you can borrow on a mortgage. The lower the amount you borrow and the less risk there is to the lender can also potentially lead to lower interest rates in some cases.
For example, if you'd like to buy a property for £200,000 and contribute a 20% deposit of £40,000, you'll need to cover £160,000 with a mortgage. A mortgage lender would then examine your income based on the reduced cost to determine whether you meet their requirements. If, for example, you earned £36,000 per year, you would meet 4.5x annual income affordability requirements for the £160,000 price but not the £200,000 original price without the deposit.
If you can't afford a down payment, you may struggle to find a suitable mortgage that covers 100% of the cost of the home you'd like to buy. However, there is one way around this. If you can find a guarantor that meets lender requirements, you can opt to look for a 100% mortgage with a guarantor attached. In these cases, your friend or family member's property or savings protect lenders, reducing risk.
If you have plans to get a first-time mortgage, ensuring you have your deposit ready to go is an excellent first step. Saving for a down payment can feel like a challenge, but in the long term, it's worth getting into good habits to ensure you access a range of options for your first home purchase. Some of the ways you can get a housing deposit include:
Traditional saving and budgeting help you to build a deposit month on month. Sending a fixed amount to a savings account or sweeping your budget for any spare money each month can be helpful to increase your deposit little by little.
Lifetime ISAs offer a savings scheme for up to £4,000 per year, where the government pays £1 for every £4 you save, adding up to £1,000 a year up to the total deposit for your first home. Over four or five years, this can be an effective way to save for a deposit consistently.
A family member may choose to gift a down payment for your home. It's essential that the sum they give you is a gift and isn't a debt that you owe them or will need to repay in the future. If you have a parent or grandparent willing to help, this may be a good option.
Are you thinking of applying for a first home mortgage? As an expert mortgage broker in London, we can support you with free advice and zero fees to navigate buying your first home. Contact us directly to discuss your goals and requirements, and we'll support you in finding a suitable mortgage.
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