According to UK Finance, the average deposit paid by first-time homebuyers is £53,855, making buying a home difficult for those with limited savings. However, some lenders are allowing buyers to borrow up to 98% of the cost.
For example, Santander’s My First Mortgage is a five-year fixed-rate mortgage for first-time buyers with a minimum deposit of £10,000 available for homes worth up to £500,000.
Several lenders have deals like Santander’s that are targeted at first-time buyers who cannot afford a high deposit. Lucy Evans, a reporter for the website This is Money, asked financial experts to comment on issues with low-deposit mortgages.
She found that high loan-to-value mortgages do help people get on the property ladder, but these deals have risks. The highest risk is from negative equity where the home’s value is lower than the outstanding mortgage. This is why some lenders won’t offer these loans for new-build properties, as their values are stagnating. If someone sells a recently built home, the amount raised may not be enough to pay off the outstanding balance of the mortgage.
Interest rates on high loan-to-value mortgages are generally higher than those on higher deposit loans. The mortgage term may be longer than average. If the borrower wants to remortgage, this may not be possible.
Experts recommend going for a 5% to 10% deposit loan if possible, as borrowers pay less over the lifetime of the mortgage.
Merseyside Movers & Storers helps first-time buyers with house removals in the Liverpool area. Call us to discuss your move.
