With ever rising property prices, one of the biggest issues that new buyers face is that of achieving the deposit usually needed to be able to secure a mortgage.

Because the mortgage that you secure is essentially a loan against the property that you buy, it attracts a rate of interest. The lower the interest rate means your mortgage payment becomes cheaper, which in turn keeps your spending under control.  

The size of actual deposits needed vary considerably between lenders, but the mortgages with the best – the lowest – interest rates are only typically available when you have a larger deposit. So, a 20% deposit will normally get you a mortgage with a lower interest than a mortgage that requires a 15% deposit, and much better than a deposit of just 10%. But with house prices best described as significant, getting together 10% of the price of an average house, still finds you needing to find £20,000 plus!!

This is becoming so onerous, some lenders are now offering 0% deposit mortgages, and are offering 100% of the purchase price via a mortgage. While these might sound ideal, are they the best way forward for new buyers?  When a lender offers a 100% mortgage (0% deposit), there are strings attached, naturally.  For a start, the only type currently available are so-called guarantor or family mortgages, which usually require an immediate relative who owns their own property to be named on the mortgage too. Part of the mortgage is then secured against their home, which can put their own property at risk if you fail to make your repayments on time, so they will need to really trust you.

Alternatively, a lender may require a family member to deposit a portion of the new house value (typically 10% of the house value), which they put in to a bank account for the early years of the mortgage and again if you fail to make payment on the mortgage this money is as at risk. On a positive the individual depositing the funds can earn interest on this amount and the money is normally returned after 3 or 5 years, once some equity has been secured in the new house.

Finally you could consider taking out a personal loan to cover the cost of your deposit monies but this can be costly, as you will need to fund the monthly cost of the personal loan and the mortgage, not to mention that most lenders are not keen on this approach, so you could be very limited with a choice of mortgage lender.  However, the advantage of the above is you don’t have to wait several years to build up the deposit monies required, while living frugally and possibly also with relatives to keep costs down. 

So, if you are looking to buy a property via a mortgage and the issue of raising the deposit monies is a problem there are clearly schemes available, all of which vary depending on your personal and family circumstances, so we would suggest seeking professional advice to consider to all of your options, including zero or low deposit schemes, so why not talk to Grange Mortgages.