The equity you have in your current property is the share of it that you already own. Fortunately, however, this could be changing thanks to the launch of a new government-backed mortgage guarantee scheme on 1 April The easiest way to do this is to use our comparison table above.
You may find that a mortgage with a higher interest rate but lower fee works out cheaper overall, so do the maths carefully. You can also click on 'check eligibility' at the side of each mortgage in the table to find out if you'll be eligible. Mortgage lenders will take into account any other borrowing when working the amount of mortgage repayments you can afford.
Here's how to decide what type of mortgage you should get. Because you only need a small deposit, mortgages like this can be a good option for first-time buyers.
There are a few ways you can try to save a deposit for your first home. You can do all, or a mixture, of the following:. Borrowing from your family or friends.
If you are using money given as a gift, bear in mind you will need the person gifting you the deposit to declare this is a gift and not a loan. Inheritance tax rules mean that there is a chance you will end up with an inheritance tax bill. Here's some more advice on how to save up a deposit. Here's how to find a mortgage to buy your first home and check you can afford it. When you're choosing a 5 percent deposit mortgage, it's worth considering the following:.
Whether this rate is fixed or variable can affect your monthly payments and how much you'll pay overall. If you pay a fixed rate You agree to the interest for a set length of time, which means you know how much your monthly repayments will be.
If you pay a variable rate The interest tracks the Bank of England base rate and goes up or down in line with this. This means your monthly repayments can be higher or lower, depending on external economic factors. You can get a repayment mortgage, which is more expensive each month but you are chipping away at the balance.
This is the most common type of mortgage. Or, you can get an interest only mortgage, which is where you just pay off the interest. An interest-only mortgage is cheaper each month, but you don't bring your balance down at all. You'll still owe the full value of the house when your fixed term ends. These are less common and are deemed as riskier by lenders.
As well as the mortgage guarantee scheme, there are a couple of other schemes that can help you buy a home with a small deposit if you're a first time buyer. With Shared Ownership, you buy a share of the property and pay rent on the share that you don't own. Lenders will look at:. Usually you'll be able to borrow around three or four times your salary when you get a 95 percent mortgage, UK wide. It might be a bit less than this if you're getting a mortgage with someone else and basing it on two incomes.
Remember that every mortgage lender has different criteria to help them decide how much they'll lend and who they'll lend to. However, saving as much of a deposit as possible will help lower your interest rate and reduce the amount you pay overall.
Always try to choose a repayment mortgage if you can. One of the biggest risks is getting into negative equity. You'd suddenly be left paying interest on a loan that's bigger than what the property's currently worth. It's usually the case that the bigger the deposit you put in, the better the mortgage deal you're offered.
As with any mortgage, if you don't make the repayments, your home could be repossessed. So it's worth being aware of this risk if you're considering taking out any mortgage at all. It is possible to get a mortgage without a deposit, but only if you have a guarantor. This is someone such as a family member or friend who uses their home or savings as collateral to cover the mortgage if you can't.
The more you save for a deposit, the more likely you are to get accepted for a mortgage and the less you're likely to pay in interest. Take a look at our guide for tips on how to save up for a deposit.
Yes, your credit record does matter as the more reliable you are as a borrower, the more likely lenders will let you borrow at competitive rates. Read more about why your credit record matters. Before applying for a mortgage, it's crucial that you check whether you can afford it.
You can check if you can afford a mortgage by working out how much you earn and spend each month and comparing this to how much buying a home will cost you. If the money is a gift, you'll need to provide evidence to the lender that you won't be required to pay it back.
Some lenders place a cap on what percentage of a deposit can be gifted, so consider taking advice from a mortgage broker first.
Alternatively, your family member could act as a guarantor for your mortgage. This can mean using their savings or property as collateral in case you miss a payment. You can read about the different options in our guide to guarantor mortgages. For this reason, it can sometimes be beneficial to save up a bigger deposit so you can get a cheaper mortgage deal.
This is where you owe more on your mortgage than your property is worth. The more equity you hold in your property, the smaller the risk of falling into negative equity — so if you've put in a bigger deposit in the first place you're automatically decreasing the likelihood of this happening. Other options include:.
You'd only need a mortgage for your share of the property, so you might be able to borrow at a lower LTV and therefore qualify for better rates. Do your research before rushing into shared ownership. Properties can be expensive and the combined cost of the mortgage, rent and service charges can quickly add up. Financial Services Limited. Financial Services Limited is a wholly-owned subsidiary of Which? Limited and part of the Which?
Money Compare is a trading name of Which? Money Compare content is hosted by Which? Limited on behalf of Which? Mortgage calculators. Compare Mortgages. In this article. Calculate mortgage costs. Different rules apply for shared ownership in Scotland and Northern Ireland.
The long-term view is to ring-fence a pool of cheaper properties for those struggling to get on the local property ladder. The government says that 10, homes a year could be ultimately sold under the scheme. Most are only likely to be for first-time buyers. And borrowers will need the financial backing of usually a family member or very good friend to secure a deal.
The property is still legally owned by the borrower. These mortgages usually work in one of two ways. A friend or relative becomes a guarantor, securing their home against the loan. If a borrower defaults, guarantors may become responsible for repayments. Alternatively, a friend or family member uses savings to guarantee the mortgage, by holding the money in a special account for a specified length of time.
Barclays Family Springboard mortgage is one example of this arrangement. A mortgage broker will guide you through the pros and cons. However, many first-time buyers are drawn to the security that a fixed rate offers, as it makes it easier to budget. The cost of fixed rate mortgages is currently also the cheapest on record. Whether you opt for fixed or variable rate deal, be sure to factor in set-up costs arrangement fees as well as any tie-ins during which time you will pay an expensive penalty to leave.
However, as your choice of lenders will be limited, always seek the expertise of a mortgage broker. This is more preferable scenario, not only because lower LTVs translate into lower mortgage rates, but because you will be able to compare deals from a much greater number of lenders.
The stamp duty holiday in England and Northern Ireland expired at the end of September Trussle is a 5-star Trustpilot rated online mortgage adviser that can help you find the right mortgage - and do all the hard work with the lender to secure it.
Laura Shannon is a consumer and money journalist with more than a decade of experience in her field. A personal finance correspondent for The Mail on Sunday for eight years, Laura has a keen interest in consumer issues and helping people to manage their money better. I've been involved in personal finance and property journalism for the past 20 years, editing websites and writing for national newspapers. My objective has always been to offer no-nonsense information to readers that either saves or earns them cash.
Select Region. United States. United Kingdom. Advisor Mortgages. Advertiser Disclosure. Published: Nov 1, , am. Laura Shannon Contributor.
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