What options do I have if I have a low deposit?

Can my parents lend me money for a house deposit?

Yes. We work with over 90 lenders, and if the Bank of Mum and Dad were a lender in their own right, it would be the 10th biggest lender in the UK.

Parents are living longer, and where people used to use an inheritance as a deposit, parents are now living for an extra generation. Instead, they might look at releasing money from their house to pass on to a child as a deposit.

Lenders prefer a deposit to be a gift, not a loan, and for the parent not to take any stake in the property. A few lenders are happy with that, but more generally, those are the criteria.

The person providing the gift typically has to provide a gifted deposit letter confirming that it is a gift, they will have no stake in the property and there’s no repayment schedule. It’s very common now to see gifted deposits coming from parents and close family.

Can I get a mortgage if I have a low deposit as a first-time buyer?

We meet a different lender every week to stay on top of what’s happening. We’re hearing from all of them that they’re working on ways to help first-time buyers get on the property market. They’re aware of the housing crisis and want to do their bit to alleviate the pressure.

Can I get a mortgage with a low deposit if I have bad credit?

You can, but it is a lot tougher. If you were to be accepted, you can expect to pay higher than average interest rates. It’s a risk-based approach for lenders, so if they are stretching to 95% or above, there’s a lot of credit score criteria to hit.

The lender is taking the majority of the risk at 95% or above. Certain lenders are able to look at that, though.

Can you get a Buy to Let mortgage with a low deposit?

Typically in the Buy to Let market, lenders like to see a 25% deposit, although some will go as low as 15% to 20%.

Again, with that risk-based approach, you’d expect to pay more in interest to reflect the additional risk taken by the lender.

Do you have any top tips for people with a low deposit?

If you’re thinking of buying next year, perhaps, and you won’t have a big deposit, get close to your credit file now. Most credit agency websites give you tips on how to improve that credit score if it’s not the best.

Also, save as much as possible between now and when you’re looking to buy. You may be able to get closer to that 5% or even a 10% deposit. Do consider the schemes we mentioned, and have a chat with your family about it.

Often people don’t like to ask, but when parents hear you’re looking at buying they may have money available. They could treat it as an early inheritance in a sense, and it can make a big difference to your ability to get a mortgage.

If you’re saving, look at the Lifetime ISA, as you could be eligible for a 25% top up on your savings. Check the criteria with the bank you choose to open that with. Finally, if you’re looking at a mortgage pretty soon, try to avoid making any new credit applications.

You’ve demonstrated how a mortgage broker can help – have you got any final thoughts?

As mortgage brokers we have access to over 90 lenders. If you think about the time it takes to research one lender’s criteria, we can do that research on your behalf 90 times over.

We’ve also got direct contact with lenders. In some cases the computer says no, but by talking to the lender and explaining the case, we’ve often got them agreed. We always stay up-to-date on schemes and eligibility, and lenders are trying hard to help people get on the property ladder. We all recognise that it’s becoming increasingly tough, with house prices ever increasing.

Key Takeaways:

• While a 5% deposit is common, options for less than 5% and even 0% deposits exist, such as Skipton’s track record mortgage for renters and certain niche lender products.
• High Loan to Value (95% or above) is considered high-risk by lenders, so applicants must maintain a very good credit score and have stable, easily-evidenced employment and income.
• Several schemes can help, including government-backed options like Deposit Unlock and the First Home scheme, as well as Shared Ownership.
• Parents and close family frequently provide ‘gifted deposits,’ which lenders prefer to be a non-repayable gift with no stake in the property, confirmed by a gifted deposit letter.
• Top tips for low-deposit buyers include checking and improving your credit score, saving diligently and avoiding new credit applications.
  
  

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.

THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE MOST BUY TO LET MORTGAGES.