One of the biggest myths about buying a first home is that it always requires a large deposit amount. While many mortgage products require a 10% deposit, there are other options that may be available.
These are some common scenarios and potential options you might be eligible for to help you to get onto the property ladder without saving up a 10% deposit:
Renting and struggling to save a deposit?
If you are currently renting and have at least a 12-month history of rent payments, lenders look favourably on this, as it shows you can afford to cover mortgage payments.
Some lenders offer 0% down payment options for renters who have consistently made on-time rent payments for 12 months or more. These mortgages are known as ‘Track Record’ mortgages and typically require a strong credit record in addition to evidence of rent payments for at least 12 consecutive months.
In some cases, lenders can offer up to 120% of the monthly rental payment as your new mortgage payment when calculating affordability. If you have a partial deposit saved up but it is not quite up to 5%, your rent payment history can strengthen your mortgage application.
Joint tenants can often boost their mortgage affordability by combining their rent histories. This means that if you are buying a property with a partner or friend and you have both been paying separate rent, you may be able to borrow a higher amount based on your combined rent payment history.
Bank of Mum and Dad
It is estimated that over 50% of first-time buyers get financial help from parents or other family members to buy their first home. For those who are in a position where family can contribute funds towards a deposit, gifted deposit mortgages provide a solution that is deemed less risky to lenders compared to a family member transferring the money.
A gifted deposit mortgage provides legal clarity that the sum is a gift with no expectation of repayment. A money transfer rather than a gifted deposit is often included in affordability calculations, which may result in a lower mortgage amount.
Gifted deposit mortgages also ensure that there are no complexities regarding ownership rights, as it includes a declaration that the funds donor has no legal stake in the property.
Another factor that could benefit first-time buyers is that gifted deposits can be made up of contributions from different family members, and donors do not have to live in the UK.
