The bigger the mortgage deposit the better!
Mortgage deposits of 5% can now be accepted by at least one UK mortgage lender (valid from 19th January 2018).
The credit crunch has forced virtually all lenders from issuing mortgages with a deposit of less than 15%, with some mortgage lenders still asking for a deposit of 25% before they will agree the mortgage, however a 10% deposit can still be regarded as sufficient by at least one lender. The interest rate may be a little high compared to what was available a year ago, but at least it means some first time buyers can now stand a better chance of entering the market, and that cant be a bad thing.
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The usual minimum mortgage deposit that is accepted by most lenders is 5%. A deposit of 10% will attract more lenders into the frame and have the added advantage of removing the need to pay for a Higher Lending Charge. Higher Lending Charge (also previously known as “mortgage indemnity”, “maximum advance fee”, “high loan to value fee”, “scheme for maximum advance”, etc.) is an insurance that the lender takes out to cover the risk of lending in excess of 75% of the property’s purchase price.
The two main points that you have to be aware of is that the fee is paid by you, not them (though you can usually add it to the overall mortgage loan if you are short of cash), and that it is designed to protect the lender not the borrower.
This means that if you were unfortunate enough to build up a high level of mortgage arrears and end up getting repossessed, although the indemnity insurance would cover any loss made by the lender, the indemnity company would be actively pursuing you to reimburse them for the amount they have had to pay out.
The other main point to bear in mind about a mortgage deposit is that it is payable to your solicitor at exchange of contracts and legally binds the buyer and seller to complete the sale.
If you try and back out after exchange of contracts you will lose your mortgage deposit and still have to pay your solicitors costs. Furthermore, if the vendors try to back out they can be sued by you and will still have to pay solicitors costs. This is why after exchange of contracts, everyone breathes a sigh of relief because up to this point absolutely nothing is legally binding.
The final point on deposits is that if a borrower can put down a mortgage deposit of at least 25% then the decision on whether to lend, and how much to lend, should fall within the mandate of the local branch manager. Putting it another way, he can normally agree the mortgage even if it falls outside normal lending criteria.