A simples guide

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It wasn’t that long ago when you could get a mortgage for the total value of your property, however it would be a rare sight today. In most cases you need at least a 10% deposit (sometimes 5% for first time buyers) and some lenders are now expecting even more substantial deposits than that.

 

If you have a bigger deposit then you can certainly access better deals, but with the average price of a property in the UK closing in on £200,000, that means you’ll have to find at least a £20,000 deposit (£10,000 for a first time buyer) before you even start thinking about fees. That is a sobering thought, especially as house prices could continue to rise while you save funds for your big move.

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Who can qualify for a 5% deposit mortgage?

Mortgage lenders really don’t like taking risks after the last property crash and the economic crisis, so you need a clean credit record. In fact, you need to have a great credit record that boasts a clean history of paying your bills on time and paying off loans. You will need to be on the electoral roll and you need to prove that you can afford the repayments.

Banks came under heavy scrutiny for lending too much to people who were left struggling with mortgage repayments. Now they will lend roughly three to four times your annual salary if you are buying the property on your own, or 2.5 times your joint salary for a couple.

With the state of the UK property market, that means all but the highest earners will have to compromise, a lot. That’s because to purchase a £200,000 home, a single person must theoretically earn £48,000 per annum. A couple will have to earn a combined take home of £76,000 per annum, which is well beyond the average salary.

In actual fact, most banks use their own scale of affordability when it comes to mortgages. They base this on your income and outgoings, including your existing debts. So it’s worth shopping around and comparing the best deals, as well as actually talking to the banks. Even if one bank won’t give the mortgage you want, there is a chance another will. 

house and piggy bank

Is a 5% deposit mortgage the right move for me?

You might want to think about your finances and check the 10% mortgages and other options, just to see what a difference it could make to your long-term future and if you can secure a better deal.

The government’s Help to Buy scheme is there to help first-time buyers by providing a 20% loan, which in essence allows you to access 75% mortgages. It’s more complex than that of course, but the deal can help you access more competitive mortgages that might otherwise be beyond reach.

mortgage application form

Should I be looking for a fixed rate or variable mortgage?

Think long and hard about going for a fixed-rate mortgage or a variable deal, too. The country is watching the Bank of England base rate with interest, but nobody seems to know what will happen for sure. So you have to decide if you want the peace of mind of locking yourself in to a 1, 2 or even 5 year fixed term agreement, or if you want to go for a variable rate.

If you go for a variable rate mortgage then you can opt for a tracker, which is linked directly to the Bank of England base rate. Or you could chose a discount mortgage, which is tied to the lender’s own standard variable rate.

Only you know your own financial circumstances, but if you have a clean record, a sizeable deposit and a good employment history then you can have the home of your dreams. Just be sure you choose the right mortgage that suits you, as it may be the biggest financial investment you will ever make. 

What are the best deals?

Nationwide has pledged to help first-time buyers and has offered a two-year fixed rate deal at 3.99% with an arrangement fee of £999. If you want to opt for a three year fixed mortgage then the company will offer you an interest rate of 4.59% and it will give you 4.79% over five years.

The Building Society also offers a Save to Buy scheme, which gives you a 0.2% discount on the overall rate and even gives you £1000 cashback when you complete on your property. To qualify you must hold a Save to Buy savings account, or alternatively an ISA, for at least six months.

That said, this may not be the best mortgage for you. Everybody’s individual circumstances are different and it pays to shop around, so check out the best deals on our site right now.

Statistics regarding the average price of a house in the United Kingdom are based on the Land Registry report released February 2016. Prices related to first time buyer agreements were sourced in April 2016 and may not be available today.

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