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Low Deposit Mortgages FAQ
What counts as a low deposit mortgage?
A low deposit mortgage is one which only requires a 5% deposit - in other words you'll only need to stump up 5% of the overall cost of the property.
What is an LTV?
LTV stands for Loan To Value and denotes the ratio of how much you need to borrow compared to the cost of the property. So, for example, if you're buying a property for £150,000 and you have a deposit of £30,000 you only need to borrow £120,000. £120,000 is 80% of £150,000 which means you need an 80% LTV mortgage.
Will I pay a higher rate if I have a small deposit?
Unfortunately, if you have a smaller deposit you are likely to pay a higher rate for your mortgage. Mortgage lenders price for risk and if you have a smaller deposit, you're deemed a higher risk.
What fees will I pay for a low deposit mortgage?
Along with the standard mortgage fees including a booking fee, arrangement fee, valuation fee and legal fees, if you have a low deposit mortgage you may also have to pay what is known as a Higher Lending Charge (HLC). As a high LTV borrower, you're deemed a riskier bet for lenders and the HLC is intended to cover this risk. It is usually a percentage of the mortgage.
What criteria will I have to meet to get a low deposit mortgage?
Your mortgage lender will want to know you can afford the monthly repayments so along with an affordability assessment, looking at your income and outgoings, it'll want you to have a good credit score, no recent arrears or CCJs and be within its age criteria. Lenders tend to have a maximum age limit of between 70 and 85. This is the age at which the mortgage must be paid off.
Can I get a mortgage with no deposit at all?
Yes you can. 100% LTV mortgages have made a return to the market in recent years and there are now a number available. However, most 100% mortgages require you to have a guarantor - essentially someone who will agree to pay your monthly repayments if you can't. You can compare 100% LTV mortgages using Know Your Money's free comparison tool.
How can the government help?
There are a number of government schemes on offer to help you buy a home including Help to Buy, Right to Buy, Shared Ownership schemes and Shared Equity schemes.
How can I compare low deposit mortgages?
Be sure to look at more than just the rate. Mortgage fees - particularly percentage-based arrangement fees - can turn a relatively cheap mortgage into a very expensive choice. Know Your Money's comprehensive comparison tables allow you to sort low deposit mortgages by overall cost so you can work out the most cost-effective solution for you.